Dear Subscriber, Please find below today's update which gives you an insight into the current market conditions, enabling you to keep informed and up to date on the latest currency movements. Headlines • UK CPI inflation on tap – slight decline to 2.7% expected.
• GBP/EUR near 8-month high – Eurozone inflation soft.
• GBP/USD at 8-month high – US Industrial Production shines.
• Larry Summers pulls out of Fed Chairman race – risk sentiment jumps as taper estimations recede.
Sterling Yesterday was fairly quiet in terms of UK economic data, and by fairly quiet I hope you understand that what I actually mean is that there weren't any UK data releases whatsoever. Thankfully, there is more for traders to get their teeth stuck into today as the Office for National Statistics releases its inflation figures for August. The Consumer Price Index is expected to slide slightly from 2.8% to 2.7%, which, although positive for UK consumers and the Bank of England, is likely to prove unsupportive of the Pound. This is because the BoE's commitment to keeping interest rates at record lows – something that dissuades markets from investing in Sterling – hinges on A) the Unemployment Rate remaining above 7.0% and B) the CPI inflation rate falling below 2.5% in the next 18 months. Conversely, a higher-than-anticipated reading could bolster rate hike bets and subsequently enhance demand for the Pound.
Euro The Sterling / Euro exchange rate remained close to an 8-month high yesterday as Eurozone CPI inflation printed at just 1.3% for August. Falling from 1.6%, the soft Consumer Price Index reading suggests that the European Central Bank is under no pressure to raise rates anytime soon, which supports ECB President Mario Draghi's forward guidance that rates will remain at the "current level or lower for a prolonged period of time". Whereas in the UK analysts and investors are growing increasingly sceptical about the BoE's ability to keep rates low in the medium term, in Europe it is now looking possible that the ECB may actually have to ease policy further by lowering rates in order to spur inflation towards its 2.0% target. Naturally, this dovish speculation is having a negative impact on the single currency.
US Dollar The Pound struck a fresh 8-month high against the US Dollar yesterday, but support for the downtrodden Dollar returned in the afternoon to take GBP/USD lower by around half a cent as US data printed positively. US Industrial Production output increased by 0.4% in August, improving on a flat month in July, as motor vehicle manufacturing accelerated. The mildly optimistic data release suggests that the world's largest economy could be set to post a respectable GDP score in the third quarter, contrary to recent reports that have reflected underwhelmingly on the US financial system. Later today US inflation is forecast to come in at 1.6%, which is unlikely to have a massive affect on US Dollar trading in the build-up to tomorrow's Fed monetary policy announcement, but could be seen to perturb the US Central Bank from cutting asset purchases too aggressively.
Canadian Dollar The Canadian Dollar failed to make any permanent inroads against Sterling yesterday despite the fact that risk sentiment was given a sizeable boost by news regarding the next Chairman of the Federal Reserve. Former favourite Larry Summers announced that he will not be in the running to take over from Ben Bernanke next year. On account of Summers' outspoken hawkish attitude towards Central Banking, markets had anticipated that his arrival would herald a succession of monetary tightening measures. The new favourite, Janet Yellen, is considered to possess even more dovish tendencies than Bernanke, and subsequently investors' appetite for risk grew substantially in reaction to the news. However, the 'Loonie' did not emulate other risk-sensitive currencies by posting gains against the Pound.
Australian Dollar The Australian Dollar is currently trading around a cent higher against Sterling than it was prior to Larry Summers' withdrawal. GBP/AUD fell by a further 1.2 cents yesterday, but the Pound rebounded as traders decided that the 'Aussie' Dollar's rallies had been overdone. With Fed stimulus possibly set to last a little longer than originally planned, it is possible that the Reserve Bank of Australia will opt to cut rates again by the end of the year to maintain a competitive edge for its nation's business owners and exporters.
New Zealand Dollar In response to the sturdy US Industrial Production data, which pushed taper estimates slightly higher, the Pound managed to rally versus the high-risk New Zealand Dollar. Sterling is now trading just -0.6 cents lower against the 'Kiwi' in reaction to the Larry Summer's withdrawal. If you need any further assistance, or require a live dealing quote - please do not hesitate to contact me on 01736 335250 or send an email to info@torfx.com Regards,
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