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Sterling may have turned the corner

Published: Wednesday 25 July 2018

  • Australian inflation drops
  • Sterling may have turned the corner
  • US versus EU trade discussions due today
​​By David Johnson

Australian Dollar drops on disappointing inflation
Australian consumer inflation was weaker than expected in June. At 2.1% on the year, it was down on the market expectations and down on last month. It whipped the rug from beneath anyone pressing the Reserve Bank of Australia to raise interest rates and it seem certain, with the slowdown in China (Australia’s main export market), the RBA will keep rates on hold for quite some time. The Australian Dollar weakened on the news and starts the day at A$1.7750 against the Pound and that is slightly above the short term support level.
Sterling sneaking back up – will data help?
Having dipped in recent days, Sterling is back on the up after Prime Minister Theresa May seemed to be getting a grip on her wayward cabinet. The GBPEUR rate is up around 1.1250 again and there are a couple of technical measures that suggest it has turned a corner for the short term at least. Further gains look more likely. Whether today’s data will support that is another matter… Mortgage lending and the CBI retail survey are due today. I suspect the CBI report will be a tad negative but the housing market has shown signs of recovery of late, so the mortgage approvals numbers should be Sterling-supportive.
Brexit and EU economic factors discussed today
The results of a trio of surveys will be published today by the IFO institute in Germany. They measure business reaction to the current business assessment, future expectations and the more widely followed current climate index. All three are forecast to be weaker than previous months. That is a reflection of a lot of factors, including the belated realisation that a bad Brexit deal will be bad for Germany as well and the fact that the global economy is slowing and an awareness that the US tariffs on EU car imports hangs in the balance. Jean Claud Juncker is meeting the US president to argue the toss on that. We await the outcome with interest.
US Dollar could weaken on data today
Neatly segueing into the US data, we will get to see the new home sales figures for June as well as the Crude Oil Inventories. With oil prices relatively stable but elevated, a drop in inventories, which is what we expect, does open the door to further demand and that may shift the price of crude oil. A rise in commodity prices tends to weaken the US Dollar (the currency in which commodities are traded). So that is worth watching out for later. The Sterling – USD rate is declining in a fairly orderly patter, with $1.32 at the top end and $1.28 at the bottom of this channel.
Flying high
And, as many of us are flying or have flown to holiday destinations, take a moment to toast one of the men who made it possible. On this day in 1909, Louis Blériot made the first flight across the English Channel in a heavier-than-air machine. It took him 37 minutes to travel from Calais to Dover. That is a special kind of bravery and, as it wasn’t run by Ryanair, he actually landed in Dover.

Silly joke

A chicken walks into a library, goes up to a librarian and says, "Book book book." The librarian decides that the chicken wants a book so he gives the chicken a book and the chicken walks away.

About ten minutes later the chicken comes back with the book, looking a bit agitated, saying, "Book book book." The librarian decides the chicken wants another book so he takes the old book back and gives the chicken another book. The chicken walks out the door.

Ten minutes later the chicken comes back again, very agitated, saying, "Book book book!" so quickly it almost sounds like one word. The chicken puts the book on the librarian’s desk and looks up - waiting for another book. This time the librarian gives the chicken another book and decides that something weird is happening.

He follows the chicken out the door and into the park, all the way to the pond. In the pond is a frog sitting on a lily pad. The chicken gives the book to the frog, who then says, "Reddit, reddit”.’

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 09:00 EU: M3 Money Supply 4.0% 4.0%
EUR 09:00 EU: Private Loans 2.9% 3.0%
GBP 09:30 UK: Confederation of British Industry Realized Sales 32 16
USD 15:00 US: New Home Sales 689k 669k
USD 15:30 US: Crude Oil Inventories 5.8m -2.6m

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