Headlines
• UK inflation report on tap –
CPI tipped to have shrunk -0.1% in October.
• GBP/EUR hits new three-month high –
Stimulus more likely following Paris attacks.
• US Dollar rallies on safe haven demand –
Global risk aversion trends kick in.
• Oil prices hit six-year low –
Commodity currencies could depreciate.
Sterling
The Pound’s fortunes are likely to be dictated today by this morning’s UK CPI report. Investors expect the report to confirm that inflation shrunk -0.1% in October, which is liable to weigh on demand for Sterling as Bank of England rate hike bets remained anchored in the second half of 2016. However, a surprise uptick in the headline inflation rate, or perhaps a rise in the core consumer price index, could give Sterling a shot in the arm and revive talk of a rate rise in the second quarter of next year.
Euro
Sterling struck a new three-month high against the Euro yesterday as policymakers discussed the potential impact that the dreadful Paris attacks could have on the Eurozone economy.
European Central Bank Vice-President Vitor Constancio noted that the attacks could ‘compound’ problems that Europe is already facing – such as fragile economic growth and weak business investment – and suggested that risk aversion could increase over the next few days and weeks. Meanwhile, fellow ECB policymaker Peter Praet hinted that the bank could unleash further supportive stimulus measures if data shows that economic confidence in the currency bloc is waning.
Stock markets proved resilient for the most part but travel and leisure shares suffered heavy losses – £1.8 billion was wiped off travel and leisure stocks – as investors speculated that anxiety among consumers could lead to reduced tourism revenues over the next few months.
Eurozone CPI printed better-than-anticipated at 0.1% compared to forecasts of 0.0% but this failed to ignite demand for the single currency.
US Dollar
The Pound cooled off a little bit against the US Dollar yesterday as risk aversion trends favoured the safe-haven ‘Greenback’.
Traders appeared slightly less willing to invest in perceived riskier assets at the beginning of this week’s session as the impact of the terrible Paris attacks continued to colour market sentiment. Some analysts posited that the uncertainty caused by the attacks could persuade the Federal Reserve to remain on the sidelines next month, but unless Fed policymakers come out and explicitly talk down the prospects of a December rate hike the US Dollar is liable to appreciate against most of the majors over the next few weeks.
Data due for release this afternoon is anticipated to show that US consumer prices rose from 0.0% to 0.1% in October and that industrial production rebounded from a -0.1% contraction to advance +0.1%.
Canadian Dollar
Sterling rallied by around a quarter of a cent against the Canadian Dollar yesterday as the value of the North American nation’s most lucrative export continued to plunge.
Oil prices fell below US$40 a barrel for the first time since 2009 as economic uncertainty stemming from the Paris terrorism attacks on Friday drove prices down. Forecasts of reduced leisure travel over the next few months weighed on demand for ‘black gold’ and subsequently the commodity-sensitive ‘Loonie’ also weakened slightly.
Australian Dollar
The Pound to Australian Dollar exchange rate grew by just under a cent yesterday as the risk-sensitive ‘Aussie’ fell out of favour with investors in light of Friday’s devastating attacks in Paris.
New Zealand Dollar
Sterling appreciated by around 130 pips to strike a 40-day high against the New Zealand Dollar yesterday as a combination of weak risk sentiment and soft dairy price expectations prompted investors to ditch the commodity-correlated ‘Kiwi’. The New Zealand Dollar selloff could continue this afternoon if, as expected, dairy prices fall at the next GlobalDairyTrade auction.
Data Released Today