UK CPI inflation figures released this morning have shown an increase taking the Pound higher. Figures which were expected to maintain the annualised rate of 3.1 % have come at 3.2 %. Although this means the Bank of England has failed to keep inflation below the 2 % target, the market reaction indicates that an interest rate rise is becoming increasingly likely causing Sterling to rally so far this morning. Euro buyers would do well to speak to their broker today as Ireland’s renewed debt fears have further fuelled a spike in GBP EURO taking rates to levels last seen in September.
Pound Sterling – UK Markets
The Pound rose to a seven week high against the Euro yesterday and this morning’s inflation figures are sending Sterling higher still. The Pound closed at €1.1794 yesterday, gaining 0.3% against the single currency as European sovereign debt concerns persisted.
It closed slightly lower against the Dollar at $1.6070, down by 0.14%.
Both the retail and house price indexes were released this morning and both came in lower than expected. However as these data releases coincided with the inflation figures, Sterling appears to have shaken them off.
The Bank of England Governor will be doing a speech at 3.30pm today. Tomorrow’s Bank of England minutes from the last policy meeting will outline how the members voted on both interest rates and quantitative easing and the discussions that took place regarding inflation and the economy. This will be even more significant in light of today’s inflation figures.
US Dollar – US Markets
The Dollar has continued to strengthen against the Euro, Sterling and the Yen, gaining 0.6; 0.14 and 0.1%, respectively, confounding the predictions that QE would lead to a long-term Dollar fall.
Sentiment towards the Dollar has been improved by the best retail sales figures seen in 7 months. Retail sales figures rose by 1.2% in October, representing a 7.3% rise year-on-year. Since 70% of American economic activity is concentrated in the domestic market, the figures are very important. Car sales were up 5% in October over the previous month; the best performance since March.
There is a very heavy set of data releases on the US economy between 13.30 and 23.00 GMT today. This wealth of data could bring movement with some of the most significant releases being the Producer Price Index, Industrial Production and a figure for the US Treasury financial resources known as TIC flows which tends to be significant for the Dollar’s movement.
Euro – European Markets
The Euro has suffered over fears that Ireland will default on its debts and there is increased speculation that the EU might add pressure for Ireland to accept help.
As usual, uncertainty drives currencies lower. Yield on Irish bonds are at record levels, prompting speculation that the Irish will not be able to meet their obligations. This is hotly disputed by Irish authorities who deny that they need a bailout.
The Irish and Portuguese may come under pressure during today’s EU finance ministers meeting to accept aid to reduce market uncertainty and speculation against the Euro. The EU are also said to be concerned that financial instability in Ireland could trigger problems in other EU nations.
European CPI inflation data was also out this morning which came in on target for the year and slightly up on the monthly forecast at 0.4 percent instead of 0.3 percent. Although this was overshadowed by the UK inflation figures with the Euro losing out to Sterling, it has gained on other currencies such as the Yen.
On another positive note, both German and European economic sentiment improved to come in above forecasts today which may be a reflection of last week’s positive GDP figures from Europe, Germany and France. The weaker economies are still a problem however with Eurostat yesterday revising Greece’s debt upwards at 15.4 percent of GDP from 13.6 percent of GDP in April.
Other Currencies – Highlights
The release of minutes from the Royal Bank of Australia rate meeting has suggested that there will probably be no further rate hikes until 2011.
This might limit gains by the Australian Dollar in the short term which was heavily boosted by the last interest rate rise.
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