Sterling
The Pound weakened across the board yesterday in response to some weaker-than-anticipated UK consumer price index data. The latest CPI report showed that British inflation slowed unexpectedly from 0.5% to 0.3% in April.
Prices for food, drink, recreation and culture all ticked higher but a mammoth -14.2% drop in air transport prices dragged the headline figure lower. Despite the drop off in demand for Sterling following the announcement, the outlook does not appear dire. The dip in air fares was actually a case of flight companies rebalancing their prices following a surge of holidays in March during the Easter period.
If last year’s steep declines in energy prices start to unwind in the second half of the year then we could see Sterling rally as Bank of England rate hike bets return.
This morning sees the release of key UK labour market data.
Euro
The Pound to Euro exchange rate softened slightly yesterday following the publication of April’s underwhelming UK inflation figures.
Today’s session could see Sterling climb if economists’ forecasts of Eurozone CPI remaining at -0.2% are proved correct.
However, there is potential for the Pound to struggle if British jobs data disappoints. The market is prepared for a slender rise in weekly earnings and for a sturdy unemployment score of 5.1%. If the results come in softer-than-anticipated, particularly the wage growth print, then it is possible that GBP/EUR could cede ground during today’s session. If the labour data impresses then demand for the Pound is liable to surge.
US Dollar
‘Cable’ softened slightly yesterday in reaction to a surprise fall in UK inflation and an anticipated rise in US consumer prices.
The US Dollar witnessed an increase in demand following the latest American CPI print, which saw prices accelerate from 0.9% to 1.1%. Optimistically, the month-on-month 0.4% rise in price pressures marked the strongest monthly performance since February 2013.
A separate report showed that US industrial production rebounded unexpectedly from -0.9% to +0.7% in April and this also boosted the ‘Greenback’. However, a soft wage growth figure of 0.2% prevented the US Dollar from registering any significant gains versus the Pound.
GBP/USD could suffer this evening if traders interpret a hawkish tone in the latest Federal Reserve minutes report. Some traders are still holding out for a June rate hike but most analysts do not foresee a rate rise ahead of the potentially destabilising ‘Brexit’ referendum.
Canadian Dollar
Sterling struggled to make any lasting inroads against the Canadian Dollar yesterday as disappointing UK inflation numbers prevented the Pound from taking advantage of a decline in oil prices.
Following Monday’s seven-month high, demand for crude softened yesterday and, subsequently, so did the commodity-correlated ‘Loonie’.
Australian Dollar
Sterling plunged lower by around a cent yesterday as markets were caught off-guard by the latest minutes report from the Reserve Bank of Australia. The RBA report showed that some policymakers were reluctant to cut rates at this month’s meeting. Markets anticipate further reductions from the central bank but bets for looser policy cooled slightly following the publication of May’s minutes report.
New Zealand Dollar
GBP/NZD weakened half a cent yesterday in response to an encouraging 2.6% rise in Global Dairy Trade prices at the latest auction. The dairy index had declined at the last auction and markets were prepared for further falls so the positive outcome came as a pleasant surprise.
Data Released
09:30 GBP ILO Unemployment Rate (3M) (MAR) Medium 5.1%
09:30 GBP Weekly Earnings ex Bonus (3M/YoY) (MAR) Medium 2.3%
10:00 EUR Euro-Zone Consumer Price Index (YoY) (APR F) Medium -0.2%
19:00 USD U.S. Fed Releases Minutes from April 26-27 FOMC Meeting Medium