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December 2017

Sterling stable after spike in inflation

Published: Wednesday 13 December 2017

  • Sterling stable after spike in inflation
  • Federal Reserve hike possible 
By David Johnson

3.1% UK inflation, the highest since 2012, was enough to steady the boat for the Pound but Sterling is still susceptible to the ongoing brouhaha over every nuance of every word uttered in any sentence pertaining to Brexit by any politician. It is becoming tiresome. But I digress, Sterling is still balanced around €1.1350 and around US$1.33 ahead of this morning’s UK employment data. If the forecasts of a fall to 4.2% unemployment rate and a small rise in average earnings are correct, GBP strength will ensue this afternoon. Of course the opposite is also true. So the risk averse amongst us may want to mitigate that risk early but others may choose automated orders to try to capture any volatility or protect against the same.
Sterling traders then shift their attention to tomorrow’s Bank of England interest rate decision. No change is expected but the voting pattern of the Monetary Policy Committee (MPC) and the nature of their statement will be crucial to the direction of the Pound. Sterling has a busy 24 hours ahead of it.
This morning also brings, what are forecast to be poor data from the Eurozone. Industrial production is expected to have slipped a little and the employment rate is likely to have stayed fairly constant. Euro traders will be watching this with one eye on tomorrow’s European Central Bank (ECB) interest rate announcement. No change is forecast for that meeting but any kind of forward guidance will be welcome.
After an upset in the midterm elections in America, all eyes will be in on the US Federal Reserve (FED) at 19:00 GMT today. There is a strong chance Janet Yellen will deliver a 25 basis point interest rate hike at her last meeting as Chair of the Fed. That announcement, plus the tone and content of the accompanying statement will drive the USD overnight. If the forecasts are correct, US inflation, like that of the UK, looks to have pushed up in November. A rise of 2.0% previously to 2.3% in November will give the Federal Reserve extra credibility if they do hike the base rate and all of this should strengthen the USD.
And TV channel ‘Gold’ has been running a competition to find the best modern Christmas cracker jokes. Their winner is ‘Why was Theresa May sacked as nativity manager? She couldn’t run a stable government’. But anyone who commutes from the south of London into town (when the trains are running) will prefer the 2nd placed joke. ‘Why don’t Southern Rail train guards share advent calendars? They want to open the doors themselves’.

Two guys from out of town are walking down a street in London when they see a sign in a shop that says Suits £12, Shirts £3, Dresses £8.

“Wow,” says Frank. We should buy as much as we can carry and get stall in the local market back home. We’ll make a fortune.” 

They agree and enter the shop as Frank says, “Let me do the talking. You’ve got a strong accent and they might not take you seriously.”

Frank puts on his best London accent, which is a Dick Van Dyke cockney affair. “Morning Guvna,” he says, “Can we av eight suits, twenny shirts and eight of your finest dresses if you please.”

“I don’t know why you are using that accent and talking like that. You aren’t local are you?” says the shopkeeper.

“Don’t know watcha mean guvna,” says Frank. “Cor Blimey. Why d’ya say a thing like that?”

“Because this is a dry cleaners.”

Today's Major Economic Releases

Market BST Data/Event Previous Expected
GBP 09:30 UK: Average Earning Index 2.2% 2.5%
GBP 09:30 UK: Claimant Count Change 1.1k 3.3k
GBP 09:30 UK: Unemployment Rate 4.3% 4.2%
EUR 10:00 EU: Employment Change 0.4% 0.4%
EUR 10:00 EU: Industrial Production -0.6% 0.0%
USD 13:30 US: Consumer Price Index 0.1% 0.4%
USD 13:30 US: Core Consumer Price Index 0.2% 0.2%
USD 19:00 Federal Open Market Committee Economic Projections    
USD 19:00 Federal Open Market Committee Statement    
USD 19:00 Federal Open Market Committee Funds Rate 1.25% 1.50%
USD 19:30 Federal Open Market Press Conference    

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