Last Friday’s non-farm payrolls posted a lot weaker than expected, in previous months this would’ve prompted traders to buy desperately into the Dollar as a safe haven asset but last week we saw the converse happen. The weak figure compounded on the weakness of the Dollar, just like the good old days. It looks like the markets are pricing in additional Quantitative easing next month.
The Dollar has lost significant value over the past few weeks as expectations for further easing over there see traders sell out of their long dollar positions preferring to add to Euro, Australian Dollar, Swiss Franc and Yen positions instead.
The currency markets are more concerned with future yields on currency than the unquantifiable risks of geo politics and they will be anticipating tomorrow mornings consumer price inflation data.
“Given the upside surprise in producer prices last week, the risk is skewed to a slightly firmer print for consumer prices,” said Christian Lawrence at RBC Capital Markets.Expectations for UK consumer inflation to remain above the Bank of England’s target, especially after higher-than-expected producer prices last week, traders are wary of chasing the downside too much.
Consumer price inflation has held stubbornly above the BoE’s 2 percent target since the start of the year despite rhetoric from the bank of England and the government that it should technically be coming back down of its own accord sometime soon.
Economists forecast a year-on-year rise of 3.1 percent in September. The data due out tomorrow morning could well support buyers of the Pound and we could see the rate against most major currencies rise.
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