GBP: Pound Topples as UK Inflation Falls
Sterling fell this morning following the release of worse than expected year-on-year June inflation figures.
UK inflation decreased from May’s four-year high of 2.9% to 2.6% in June, and with wage growth remaining at 2% it illustrates that living standards in the UK are being continuously squeezed.
The drop is predominantly due to the falling price of petrol putting less pressure on the UK’s transport price inflation for June – something that drove the overall figure down.
Understandably the Pound dropped sharply in response to the figures, as slowing inflation limits the likelihood of a near-term rate hike from the Bank of England (BoE).
The near-term forecast for Sterling remains plagued by fractious Brexit negotiations, weak GDP and low wage growth, all of which are likely to hold off higher interest rates in the short term.
GBP/EUR: Pound to Euro Pares Gains, Drops to 1.1304
The Pound pared even more of last week’s gains against the Euro this morning following the release of worse than anticipated UK inflation figures.
This data has a significant impact on BoE rate hike bets due to the belief that higher inflation and low wage growth could push the central bank into increasing borrowing costs to ease the pressure on consumer spending. The drop in inflation has reduced the odds of the BoE making an adjustment and subsequently weakened the Pound.
The Eurozone itself is still digesting its own inflation figures from yesterday, which came in softer than anticipated, but so far it has successfully remained somewhat unperturbed.
July’s ZEW economic sentiment index surprisingly came in this morning below the forecast of 40.1, printing at 35.6 – down from the previous 37.7.
Germany’s ZEW economic sentiment also disappointed, falling 1.1 points from the previous month to 17.5.
Achim Wambach, President at ZEW, stated:
‘Our overall assessment of the economic development in Germany remains unchanged compared to the previous month. The outlook for the German economic growth in the coming six months continues to be positive. This is now also reflected in the survey results for the Eurozone.’
The near-term forecast for the single currency remains positive, but Thursday’s European Central Bank (ECB) decision looms, and with inflation remaining far from target levels many are predicting that the ECB will strike an increasingly cautious tone. Should this occur, then Sterling may well wriggle out from under the Euro’s foothold.
GBP/USD: Pound US Dollar Fluctuates as Senate Rejects Republican Health Care Bill
‘Cable’ briefly rose this morning after the republican effort to repeal and replace Obamacare failed once more. This rally was, however, short-lived, as market attentions soon shifted to the UK’s disappointing CPI data, forcing the Pound to pare its recent gains against the ‘Greenback’.
The lacklustre UK inflation data has cast something of a gloomy cloud on the forecast for this pairing. On one hand the odds of an imminent rate hike from the BoE seem diminished. But on the other, the likelihood of the Federal Reserve adopting tighter monetary policy in 2017 is also unlikely. Movements then will most likely be predominantly determined by Brexit talks in the meantime.
GBP/CAD: Steady Crude Oil Prices and Second-Rate UK CPI Data Drives GBP Down
The Pound to Canadian Dollar exchange rate plunged this morning as June’s UK inflation was revealed to have dropped from the previous month.
The oil markets steadied somewhat Tuesday morning, supporting the commodity-correlated ‘Loonie’, but high production within the US and significant OPEC producers continues to negate progress.
GBP/AUD: Pound Australian Dollar Exchange Rate Hits Lowest Levels since April
A perfect storm of positive Chinese GDP, a weak US Dollar, upbeat Reserve Bank of Australia (RBA) minutes and disappointing UK inflation data has driven the ‘Aussie’ Dollar up this morning.
Chinese GDP came in at 6.9% for the second quarter, surpassing forecasts of 6.8% and demonstrating an ever increasing demand for products like steel, which require iron ore (Australia’s primary export) to produce.
July’s RBA minutes were somewhat more positive than previously assumed, with officials discussing growth within the global economy, an improvement in public investment, the labour market, and household consumption. Notably there were also discussions on what the neutral cash rate is, something that the RBA estimated to be at 3.5%, far above the current interest rate of 1.5%.
GBP/NZD: Pound Tumbles against New Zealand Dollar, Dairy Auction Prices on Horizon
The Pound to New Zealand Dollar exchange rate dropped this morning as strong Chinese growth boosted demand for the commodity-correlated ‘Kiwi’ and Sterling suffered from poor UK inflation figures.
Sterling’s ability to regain some losses against the New Zealand Dollar today is dependent on the results of the New Zealand dairy auction. An increase in final dairy prices will drive demand for the ‘Kiwi’, whilst a drop might ease some of the pressure on the GBP/NZD exchange rate.
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