Pound Sterling Sinks as UK Inflation Disappoints
Bank of England rate hike bets softened yesterday, dragging Sterling lower with them, following data showing that British inflation remained at 2.6% in July.
Traders had expected the consumer price index to inch higher to 2.7%, but falls in transport costs, recreation and communication held the figure back.
The underwhelming CPI print was seen as the final nail in the coffin for 2017 BoE rate hike bets. Expectations were low prior to the report but with the effect of last June’s post-Brexit Sterling depreciation fading from the figures, the likelihood of inflation shooting high enough to prompt the BoE to hike rates seems fairly remote at this juncture.
The central bank expects price pressures to peak at 3.0% later this year, and appears comfortable with that happening because analysts predict that inflation will soften in 2018.
Pound to Euro Exchange Rate Hits New 10-Month Low
The Pound to Euro exchange rate tumbled -30 pips to strike a fresh 10-month low yesterday following the morning’s disappointing UK CPI report.
Sterling also struggled against the single currency in reaction to a senior EU official describing Britain’s latest Brexit proposal as ‘fantasy’.
The UK government proposed a streamlined customs partnership with the EU, whereby Britain would align its approach to customs with the EU so that there was no need for a UK-EU customs border.
The ambitious and ‘untested’ plan was shot down by the European Parliament’s Brexit officer Guy Verhofstadt, who said on Twitter: ‘To be in and out of the customs union and ‘invisible borders’ is a fantasy’.
Pound to US Dollar Exchange Rate Sinks -100 Pips as US Retail Sales Impress
‘Cable’ plunged to a one-month low yesterday as lower-than-expected UK inflation weighed on BoE rate hike expectations.
Any hopes of GBP/USD recovering from its 100-pip morning decline were ended at the beginning of the New York session when US retail sales beat the market consensus.
The latest consumer report featured a robust expansion of 0.6% in July, while June’s -0.2% fall was positively revised to a +0.3% increase.
The upbeat report was seen to be compatible with annualised GDP growth of around 3% in the third quarter, which some investors believed would be enough to persuade the Federal Reserve to hike rates one more time in 2017.
Indeed, the Fed currently predicts one further rate rise this year, meaning there is potential for the ‘Greenback’ to rally further if markets align their expectations with the US central bank. This could happen sooner rather than later if this evening’s Fed minutes report features a clear hawkish message.
Pound to Canadian Dollar Exchange Rate Suffers 1-Cent Depreciation
Sterling skidded to its lowest level against the Canadian Dollar for over two weeks yesterday. GBP/CAD shed a cent following the morning’s softer-than-expected UK CPI report, however, there is potential for a rebound if this morning’s UK labour market report throws up any positive wage growth surprises.
The headline unemployment rate is tipped to remain at a joint-42-year low of 4.5%, but markets will most likely focus on the earnings element of the report as this will have more impact on BoE rate hike expectations.
Wage growth is tipped to remain at 1.8%, significantly less than the 2.6% rate of inflation. The Pound may need a higher wages number to enjoy any respite.
Pound to Australian Dollar Exchange Rate Slides 50 Pips
The Pound to Australian Dollar exchange rate softened by around half a cent yesterday as bearish market sentiment drove Sterling lower across the board following underwhelming inflation figures.
The high-beta ‘Aussie’, meanwhile, saw demand lifted by the latest minutes report from the Reserve Bank of Australia (RBA), which reinforced the view that rates are more likely to rise than fall in the foreseeable future.
Pound to New Zealand Dollar Exchange Rate Holds Steady
The Pound to New Zealand Dollar exchange rate fluctuated yesterday, however, the pair ended flat on the day due to a slight downtick in New Zealand dairy prices.
The latest GlobalDairyTrade auction saw prices edge -0.4% lower, which reduced the appeal of the ‘Kiwi’ and allowed Sterling to recover from its CPI-related losses during the afternoon.
Data Released Today
09:30 GBP ILO Unemployment Rate (3M) (JUN)
09:30 GBP Average Weekly Earnings (3M/YoY) (JUN)
10:00 EUR Euro-Zone Gross Domestic Product s.a. (QoQ) (2Q P)
19:00 USD FOMC Meeting Minutes (JUL 26)