Sterling
Lower-than-anticipated UK inflation data prompted a decline in the value of the Pound yesterday. Sterling softened against most of the majors in reaction to the August CPI report, which showed that price pressures remained steady at 0.6%, confounding expectations of 0.7%. Price cuts in hotel rooms, wine bottles and clothing products equalled out hikes in food prices and air fares.
The underwhelming print hurt demand for the Pound because it was seen to give Bank of England policymakers more leeway in terms of unleashing further stimulus measures later down the line. Although the BoE is prepared to look through an expected spike in inflation related to the weakening of the Pound following the ‘Brexit’ vote, yesterday’s score means there is slightly less chance of additional stimulative action stoking an unwanted surge in consumer prices.
Euro
The Pound to Euro exchange rate tumbled by around -150 pips yesterday to strike a two-week low in reaction to the softer-than-expected August CPI report. The single currency was also supported by data in Europe showing that economic sentiment in the bloc rose from 4.6 to 5.4 at the start of September.
Later this morning we will find out how well the British jobs market held up in the month immediately following the historic June 23 referendum. Analysts are primed for a drop in weekly earnings, from 2.4% to 2.1%, and a jump in jobless claims, from -8,600 to 1,800. However, the headline jobless rate is tipped to remain at a decade-low of 4.9% and this should prevent Sterling suffering any severe losses. On the other hand, if the unemployment rate rises unexpectedly it could spell trouble for the Pound.
US Dollar
‘Cable’ slumped to a -130 pip daily defeat yesterday as anxious traders pulled out of the Pound following the slightly slower-than-forecast rise in August consumer prices. It seems that this morning’s UK unemployment report also weighed on the minds of investors and we could see GBP/USD strike new fortnightly lows during today’s session if the jobs report also disappoints market forecasts.
A dovish speech from Federal Reserve policymaker Lael Brainard on Monday sent September Fed rate hike bets down from 40% to 25% and consequently caused the US Dollar to depreciate against the Pound. However, markets appear to have brushed off the bearish sentiment and demand for the ‘Greenback’ was sturdy across the board yesterday.
Canadian Dollar
The Pound lost ground against the Canadian Dollar yesterday following the morning’s UK CPI report, however, Sterling’s losses were trimmed during the afternoon when crude oil prices took a tumble.
The value of Canada’s largest raw export tanked almost -3% in reaction to a report from the International Energy Agency (IEA) suggesting that supply will continue to outpace demand well into 2017. The IEA forecast that demand would be 100,000 barrels a day less in 2016 than initially estimated and 200,000 barrels a day less in 2017.
Australian Dollar
The Pound to Australian Dollar exchange rate touched a seven-week high yesterday as global risk aversion trends continued weighing on the commodity-correlated ‘Aussie’. The Antipodean currency did not respond well to the IEA oil report and it did not manage to capitalise on the morning’s disappointing UK inflation numbers.
New Zealand Dollar
Sterling rallied by around 60 pips versus the New Zealand Dollar yesterday afternoon as negative sentiment chipped away at risk-sensitive currencies. However, the ‘Kiwi’ could recover later this evening when second quarter GDP is expected to print at 1.1%, up from 0.7% previously.
Data Released
09:30 GBP ILO Unemployment Rate (3M) (JUL) Medium
09:30 GBP Average Weekly Earnings (3M/YoY) (JUL) Medium 2.1%
09:30 GBP Jobless Claims Change (AUG) Medium 1.8k
10:00 EUR Euro-Zone Industrial Production w.d.a. (YoY) (JUL) Medium -0.8%
23:45 NZD Gross Domestic Product (QoQ) (2Q) Medium 1.1%
23:45 NZD Gross Domestic Product (YoY) (2Q) High 3.6%