Headlines
• UK Inflation Turns Negative –
GBP/EUR hits 5-month low
• GBP/USD Recovers Losses –
Bullard flattens October rate hike hopes
• Chinese imports fall –
AUD, NZD, CAD pressured lower
• Australian Dollar Stages Recovery –
Despite soft Chinese inflation
Sterling
After the UK’s latest Consumer Price Index showed that annual non-core inflation returned to negative territory in September the Pound plummeted across the board.
The GBP/EUR exchange rate slumped to a five-month low, falling to trade in the 1.33 region, while GBP/USD hit 1.52. Sterling also shed earlier gains against peers like the Australian and New Zealand Dollars.
The -0.1% CPI result gives the Bank of England (BoE) more room to leave interest rates lower for longer and demand for the Pound declined accordingly. Core inflation held at 1.0% instead of climbing to 1.1% as projected.
While Sterling recouped some of its losses ahead of the publication of the UK’s employment numbers, further declines could be on the cards if average earnings don’t increase or the UK adds fewer positions than forecast.
Ecostats for the Eurozone may have failed to impress on Tuesday but the UK’s disappointing inflation report helped trigger a EUR/GBP rally.
The common currency also remained trending in a stronger position against the US Dollar as US rate hike speculation dictated sentiment.
However, Euro gains were limited as the German ZEW Economic Sentiment Survey fell dramatically from 12.1 to 1.9. The Current Situation gauge similarly fell from 67.5 to 55.2 in October while the Eurozone’s own Economic Sentiment index slid from 33.3 to 30.1.
The only European data with the potential to inspire Euro movement today is the Eurozone’s Industrial Production report. If output is shown to have fallen on the month and eased on the year as expected, the common currency could come under pressure.
US Dollar
Influential US ecostats have been in short supply this week, leaving US Dollar movement to be directed by Federal Reserve interest rate hike speculation.
While recent statements from Fed officials have been conflicting, none have done much to reinforce hopes for a 2015 adjustment. The latest remarks, from St Louis Fed President James Bullard, appeared to dismiss the prospect of an October rate increase and saw the ‘Greenback’ give up previous gains against the Pound.
Bullard commented; ‘It is very tough for the committee to make a big decision and then change it after only one meeting. Roughly speaking the data has not been that different from what would have been expected, and the jobs report was weaker.’
The US is set to publish its Advance Retail Sales report today. While a stronger-than-forecast increase in consumer spending would give the US Dollar a boost, movement may be limited ahead of tomorrow’s US Consumer Price Index.
After an impressive run of gains, the Canadian Dollar edged lower against its rivals on Tuesday as China’s disappointing trade report took a toll on commodity-driven assets.
The dramatic slide in Chinese imports pushed down the price of crude oil, Canada’s key commodity, and the ‘Loonie’ weakened accordingly. The Canadian Dollar put on a good showing against the Pound however as the British asset bore the brunt of a disappointing domestic inflation report.
However, with China’s inflation data printing softly the GBP/CAD pairing returned to a firmer footing ahead of the release of the UK’s latest employment numbers.
Australian Dollar
China’s subpar trade data left the Australian Dollar struggling and the currency came under additional pressure after Westpac Banking Corp announced its intention to increase mortgage rates by 20 basis points.
The move triggered concern that other Australian lenders will adopt a similar approach and drive the Reserve Bank of Australia (RBA) into cutting interest rates further in the near future.
The AUD exchange rate derived some support from positive domestic data and pared back US interest rate hike expectations but if today’s US retail sales report impresses we could see the ‘Aussie’ downtrend continue.
Australia’s Westpac Consumer Confidence index climbed 4.2% in October, with the measure rising from 93.9 to 97.8.
The New Zealand Dollar largely held gains recorded against the Pound in the wake of the UK’s inflation report, with the GBP/NZD exchange rate trending over 1% lower as the European session got underway in spite of China’s below-forecast CPI.
While today’s UK jobs numbers are likely to impact the GBP/NZD pairing, investors will also be looking ahead to New Zealand’s upcoming Performance of Manufacturing Index, Consumer Confidence figure and Consumer Price Index for the third quarter.
Data Released Today
GBP Average Weekly Earnings (3M/YoY) (AUG)
GBP Weekly Earnings ex Bonus (3M/YoY) (AUG)
GBP Employment Change (3M/3M) (AUG)
EUR Euro-Zone Industrial Production w.d.a. (YoY) (AUG)
USD Advance Retail Sales (SEP)