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October 2017

Sterling awaits inflation

Published: Tuesday 17 October 2017

  • Sterling awaits inflation
  • Brexit talks to ‘accelerate’… apparently
By David Johnson
 
 
Through the dust and smog filled skies yesterday, London fell into night-like gloom at 3pm and the sun looked like a blood orange lozenge. It isn’t hard to understand how something like that happening 300 years ago would have caused panic and distress. I’m so glad we are more civilised now and all we do is photograph it for Instagram and Facebook.
 
I am a little surprised that Sterling didn’t strengthen at all on the announcement by Theresa May and Jean-Claude Juncker that Brexit negotiations would now gather pace. Maybe the markets don’t believe them and maybe they aren’t bothered until they see more detail, or maybe, like all of us, they are now just plain bored of the word ‘Brexit’.
 
Sterling should react when we see UK inflation data this morning, though. A 3.0% Consumer Price Index is forecast and that would be further incentive for the Bank of England (BoE) to push the base rate up by 25 basis points when the Monetary Policy Committee meets on the 2nd  November. Whether they ought to do so is another question. As the BoE says it looks 18-24 months ahead, do they really want higher interest rates at the time of the transition from EU to independent UK and do they want to scupper the fragile recovery in the property market volumes? Either way, a higher inflation figure – especially if it is above 3.0% – will strengthen the Pound and, if the retail sales figures are also strong, the bounce could be marked.
 
Another central bank was in the news overnight. The Reserve Bank of Australia made it clear in the minutes of their last meeting that they were in no rush to join the monetary tightening cycle being pursued by other central banks. That should allow some weakness in the Aussie Dollar; a useful thing when Australian exporters need support.
 
And America’s central banker chief Janet Yellen will be formally interviewed by the US President this week as she seeks to retain her job. Trump is not a fan of hers; that is pretty clear, so this may be little more than a formality. This afternoon brings US industrial and manufacturing data plus capacity utilisation. These combined will be influential as the Federal Reserve mulls further interest rate hikes and/or Quantitative Easing (QE) reductions. The US Dollar is being bounced around, though, as oil prices rise and tensions between the US and North Korea and Iran do likewise.
 
We will get Eurozone inflation data this morning along with German and Eurozone economic sentiment indices. These are all forecast to be rather positive. The Euro is likely to react positively if that is the case, so beware of the battle between a GBP recovery versus the Euro rebound.
 
And on this day in 1968, Bullitt, starring Steve McQueen and a gorgeous green mustang was released. If you get a chance to see it, look out for the VW Beetle they pass half a dozen times in the car chase sequence. It’s always entertaining.
 
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Today's major economic releases

Market BST Data/Event Previous Expected
GBP 09:30 UK: Consumer Price Index 2.9% 3.0%
GBP 09:30 UK: Core Consumer Price Index 2.7% 2.7%
GBP 09:30 UK: Producer Price Index Input 1.6% 1.2%
GBP 09:30 UK: Retail Price Index 3.9% 4.0%
EUR 10:00 EU: German ZEW Economic Sentiment 17.0 20.1
EUR 11:00 EU: Final Consumer Price Index 1.5% 1.5%
EUR 11:00 EU: Final Core Consumer Price Index 1.1% 1.1%
GBP 11:15 Bank of England Governor Carney Speaks     
USD 13:30 US: Import Prices 0.6% 0.6%
USD 14:15 US: Industrial Production -0.9% 0.3%
USD 14:15 US: Capacity Utilization Rate 76.1% 76.2%

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