UK CPI on tap –
Inflation to rise to 0.2%.
Pound up from yearly low vs. Euro –
Eurozone inflation due.
‘Cable’ rebounds minimally from five-year low –
Risk aversion benefits US Dollar.
GBP/CAD close to monthly high –
Crude oil strikes 13-year low below $28 a barrel.
Sterling
The Pound put in a fairly subdued performance on the currency markets yesterday, recovering slightly from yearly lows versus the Euro and the US Dollar but failing to press ahead versus the commodity-linked currencies.
The main event to look out for on the economic calendar today is this morning’s UK consumer price index report, which is expected to print at 0.2%. If the inflation numbers improve inline with the median market consensus then we could see Sterling increase in value. But, with oil prices plunging sharply over the past few months, there is every chance that UK CPI will remain weak at 0.1%.
Euro
Despite the expected uptick in UK CPI Sterling may struggle to gain much ground against the Euro today because Eurozone inflation is also tipped to print at 0.2%.
The European Central Bank looks to be a long way off raising interest rates but hopes of a near term UK rate hike have also been stymied, by global disinflation, soft wage growth and ‘Brexit’ related uncertainty. Subsequently, the Pound to Euro exchange rate has softened by around 12 cents over the past two months.
GBP/EUR recently struck a one-year low but managed to strengthen slightly during Monday’s session.
US Dollar
‘Cable’ initially rebounded by over half a cent yesterday morning as European stocks rallied and risk aversion cooled. However, further falls in the price of crude oil spooked markets and shares began to tumble, erasing most of Sterling’s morning gains.
The ‘Greenback’ has grown by around ten cents against the Pound over the past month and fears of further volatility in emerging markets mean that GBP/USD could struggle to recoup its recent losses.
Canadian Dollar
The Pound to Canadian Dollar exchange rate strengthened by around a quarter of a cent yesterday as analysts reacted to news that Iran was planning to increase oil production by 500,000 barrels per day.
The Middle Eastern nation, which recently had sanctions lifted after the International Atomic Energy Agency announced that it had curbed its ability to develop a nuclear weapon, is now free to sell as much oil as it wants on international markets. The return of Iran at full capacity is likely to exacerbate the current oversupply glut and news of increased production caused crude to drop to a fresh 13-year low below $28 a barrel. This weighed on the commodity-sensitive ‘Loonie’.
Australian Dollar
In contrast to the GBP/USD chart, yesterday’s GBP/AUD graph showed a surge in demand for the ‘Aussie’ Dollar during the morning as risk sentiment improved slightly before a reversal of fortunes when oil-related concerns compromised investors’ appetite for risk.
As can be expected, the high-risk Australian Dollar weakened against the safer haven Pound when risk aversion took over.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate traded fairly flatly yesterday but we could see GBP/NZD rally today if UK inflation rises from 0.1% to 0.2% as expected and New Zealand CPI slows from 0.4% to 0.3% as anticipated.
Data Released
09:30 GBP Consumer Price Index (YoY) (DEC) High 0.2%
10:00 EUR Euro-Zone Consumer Price Index (YoY) (DEC F) Medium 0.2%
10:00 EUR German ZEW Survey (Economic Sentiment) (JAN) High 7.9
21:45 NZD Consumer Prices Index (YoY) (4Q) High 0.3%