Headlines
‘No-flation’ hits Britain
– Pound down on zero percent CPI score.
Eurozone private sector close to 4-yr high
– Sturdy PMI data boosts Euro.
GBP/USD declines on inflation data
– US CPI rises to zero.
‘Aussie’ & ‘Kiwi’ hit 2-month highs
– Soft UK CPI weighs.
Sterling
The Pound lost ground against the majors yesterday in reaction to a consumer price index report showing that, for the first time since records began in 1989, UK inflation sunk to zero in February of this year. A -16.6% drop in motor fuels and a -3.4% decline in food prices were the main drivers behind the dip, but price pressures were seen to have slowed in other sectors like recreational goods, furniture and furnishings.
Analysts had been primed for the headline CPI index to fall from 0.3% to 0.1% and, although Britain’s current period of ‘no-flation’ is liable to boost Britons’ spending power and contribute to the economy through enhanced consumer spending figures, demand for Sterling dropped off following the reading because the lower-than-anticipated score was seen to reduce the possibility that the Bank of England will look to start raising interest rates ahead of schedule.
Euro
Sterling tumbled by around half a cent against the Euro yesterday as investors pushed back their BoE rate hike bets in reaction to the UK’s soft inflation outlook – CPI is currently running at a record-low of 0.0% and looks set to enter disinflationary territory over the next few months.
The single currency was also boosted by some good news out of the currency bloc’s largest economy: the latest purchasing managers index report in Germany showed that private sector output rose to an eight-month high of 55.3 in February. The upbeat German figures subsequently helped boost the Eurozone wide PMI to a near four-year high of 54.1, beating expectations of 53.3. Most elements of the report were seen to augur well for future economic performance in the Eurozone because periphery private sector job creation hit an eight-year high and so did the sub-index for new orders.
US Dollar
The Pound to US Dollar exchange rate declined by around -70 pips yesterday as markets reacted to the lower-than-expected British inflation figure. Across the pond in the US, it was reported that price pressures inched forward slightly, rising from -0.1% to 0.0%. The better-than-anticipated result bolstered demand for the ‘Greenback’ as it was seen to marginally increase the probability that the Federal Reserve could begin its hiking cycle in June of this year.
The US Dollar also benefitted from a robust 7.8% rise in new home sales and an upbeat manufacturing PMI score of 55.3, which beat the market consensus of 54.6.
Canadian Dollar
Sterling softened by around -120 pips against the Canadian Dollar yesterday in reaction to Britain landing in ‘no-flation’ territory. BoE Governor Mark Carney has stated in the past that low inflation is ‘unequivocally good’ for the UK economy but in terms of rate hike expectations and demand for the Pound, yesterday’s zero percent inflation score was unequivocally bad.
Australian Dollar
The Pound to Australian Dollar exchange rate plummeted over 100 pips to a fresh two-month low yesterday as BoE rate hike bets declined in reaction to the UK’s lowest consumer price index score on record.
New Zealand Dollar
Sterling also succumbed to a new two-month low against the New Zealand Dollar yesterday as a result of the ‘no-flation’ UK CPI report. But as long as soft price pressures help boost domestic spending without weighing on employees’ ability to bargain for higher wages then we should see British GDP growth start to benefit from the low CPI rate over the next six months.
Data Released Today
09:00 EUR German IFO – Business Climate (MAR) Medium
12:30 USD Durable Goods Orders (FEB) High