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October 2016

Sterling levels off ahead of inflation data

Published: Tuesday 18 October 2016

  • Sterling levels off ahead of inflation data
  • USD eases on profit take
  • RBA cuts highly unlikely now
  • NZ inflation beats forecasts
Sterling had another day at the bottom of its ranges as Manufacturing and Industrial data came in roughly as expected. There was no crash in the performance of those sectors, you’ll be pleased to know and both reported modest growth. The word for today is ‘inflation’ as far as the Pound is concerned – and the US Dollar for that matter. The recovery of commodity prices, the fall in the value of the Pound and some of last year’s deflationary pressures falling out of the figures will have allowed UK inflation to have risen in September. Forecast of 0.8 to 0.9% are en vogue for the annualised figure and some are even thinking we may see the heady heights of 1.0%. ooooh aaaah. This won’t change the Bank of England’s (BOE) stance on interest rates but it may become a factor in wage negotiations and that is of greater interest to the government and the central bank. Sterling will push a tad higher if the actual data is at the upper end of these forecasts.
 
A bit of profit taking saw the US Dollar weaken in overnight trade. With crude oil prices settling around the $50 a barrel level, there was a little more calmness in the markets.  Inflation data this afternoon should show growth of around 1.5% on the year at the headline level. However, it is expected that the Core Inflation data will be largely unmoved and, if that is the case, it doesn’t alter the expectations of a December rate hike from the Federal Reserve. There is every reason for investors to want to hold the USD at the moment, hence its strength.
 
We got to see the minutes from the last reserve Bank of Australia meeting last night. They left their base rate on hold but they are clearly very closely watching the buoyant economy for signs of overheating. That would suggest the next interest rate move is more likely upward than any kind of cut. The Australian Dollar is already immensely strong; especially against the Pound, but we can’t rule out further strength.
 
The New Zealand Dollar also strengthened in early trade after inflation data showed a 0.2% rise whilst forecasts had been for an unchanged or flat number. That pretty well kyboshed any thoughts of interest rate cuts and, as with the Aussie central bank, there is more chance that the next interest rate move from the Reserve Bank of New Zealand (RBNZ) will be a hike; although, when that will happen is anybody’s guess.
 
And the Olympic and Paralympic athletes come to London today. It looks like they may get away with a dry parade. Let’s hope so. If you are going to Trafalgar Square, give them a wave from me. 
 

Prayers

 
Tim was saying his prayers as his father passed by his bedroom door.
 
"God bless Mommy, and God bless Daddy, and please make Berlin the capital of France."
 
Tim," said his father, "why do you want Berlin to be the capital of France?"
 
"Because that's what I wrote in my geography test!"
 

Today's Major Economic Releases 

 
Market BST Data/Event Previous Expected
GBP 09:30 UK: Consumer Price Index (CPI) 0.6% 0.9%
GBP 09:30 UK: Producer Price Index Input (PPI) 0.2% 0.4%
GBP 09:30 UK: Retail Price Index (RPI) 1.9% 2.0%
GBP 09:30 UK: Core Consumer Price Index (CPI) 1.3% 1.4%
GBP 09:30 UK: House Price Index (HPI) 8.3% 7.9%
GBP 09:30 UK: Producer Price Index Output (PPI) 0.1% 0.2%
CAD 13:30 Canada: Manufacturing Sales month-on-month 0.1% 0.3%
USD 13:30 US: Consumer Price Index (CPI) 0.2% 0.3%
USD 13:30 US: Core Consumer Price Index (CPI) 0.3% 0.2%


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Daily Currency Analysis by David Johnson

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