Demand for Pound Sterling Could Rise or Fall on UK Inflation Print
After a fairly quiet week of domestic data prints, investors finally have something to get their teeth stuck into this morning when the Office for National Statistics releases its latest CPI inflation report.
Analysts predict that inflation may have inched up from 2.6% to 2.7% in July, and anything above that level could lend the Pound a leg-up against its currency rivals.
However, with the impact of Sterling’s post-Brexit depreciation starting to fade from the 12-month consumer price comparison, it is entirely possible that we could see the CPI score soften. This would likely weigh on Bank of England rate expectations and send Sterling reeling versus the majors.
Pound to Euro Exchange Rate Rebounds from 10-Month Low
The Pound to Euro exchange rate moved slightly higher through yesterday’s session as a mixture of profit-taking, following the latest 10-month low GBP/EUR trough, and a disappointing Eurozone factory print drove Sterling on.
The Pound remains close to its lowest level in 10-months, and could slide later this morning if UK CPI disappoints, but Sterling did manage to register a mild daily gain of around 20 pips at the beginning of the week.
Industrial production in the Eurozone tumbled -0.6% on a monthly basis in June, it was reported yesterday. The factory sector saw contractions in capital goods, durable consumer goods, non-durables and intermediate goods. The only positive impact came from energy production.
Some traders sold the Euro following the result as it was seen to decrease the chances of any tightening from the European Central Bank.
Indeed, Bundesbank director Andreas Dombret commented yesterday that the ECB’s stimulus scheme is very much justified. However, later in the day German finance minister Wolfgang Schaeuble stated that he hoped the ECB’s low-interest rate policy would ‘end soon’.
Pound to US Dollar Exchange Rate Slides Below Psychological Support
‘Cable’ skidded through longstanding psychological support yesterday. The Pound settled below the significant barrier and registered a half-cent depreciation on the day.
We could see GBP/USD challenge resistance this morning if British inflation impresses, however, a soft CPI print could easily drive the Pound lower versus the US Dollar. During the afternoon US retail sales are tipped to print at 0.4%, which could offer some support to the ‘Greenback’, as the previous month saw sales volumes slide -0.2%.
Pound to Canadian Dollar Exchange Rate Holds Flat as Crude Softens
The Pound to Canadian Dollar exchange rate held fairly steady yesterday as bearish British sentiment met with a decline in crude prices.
Oil dipped after Chinese industrial production cooled from 7.6% to 6.8%, suggesting the Chinese dragon may need less fuel in the form of Canadian crude. Oil is Canada’s most lucrative export and consequently demand for the ‘Loonie’ softened in tandem with crude.
Pound to Australian Dollar Exchange Rate Rallies 50 Pips
Despite a rip-roaring annualised Japanese GDP score of 4.0% in the second quarter, which smashed forecasts of 2.5%, the Australian Dollar weakened versus Sterling yesterday. Often when the big Asia-Pacific economies post sturdy growth it can boost demand for the Antipodean currencies on expectations of strong cross-border flows.
However, on this occasion the robust Japanese print failed to give the ‘Aussie’ a lift, possibly because it could have been seen to reduce the probability of additional stimulus in Japan.
Pound to New Zealand Dollar Exchange Rate Holds Steady
The Pound to New Zealand Dollar exchange rate barely budged an inch yesterday ahead of key UK inflation and New Zealand dairy data due for release today. The UK CPI report could impact BoE rate hike bets, while the dairy auction could buffet demand for the ‘Kiwi’.
Data Released Today
09:30 GBP Consumer Price Index (YoY) (JUL)
13:30 USD Advance Retail Sales (JUL)