UK Consumer Price Inflation Unexpectedly Eases

The moderation of UK inflation over the past two months, further supported by the just out consumer price inflation report for November, has lessened pressure on the BoE to raise interest rates soon. Against this backdrop, tomorrow’s labour market data and the BoE minutes of the last policy meeting will draw considerable market attention. Across the Atlantic, largely upbeat economic data of late has raised prospects of QE3 tapering during Ben Bernanke’s tenure as the Fed Chief. However, today’s US inflation print has the potential to sway the central bank’s decision at the eleventh hour. Likewise, the Euro zone inflation and the German forward looking sentiment indices today will generate market interest and offer insights into the strength of the region’s economic recovery going forward.

Pound Sterling – UK Markets

In the run up to the just released British consumer price inflation report, Sterling nudged higher against the greenback. However, the Pound has pared back most of its gains after the report indicated a slight easing in inflationary pressures for November, despite a separate housing report showing a continuation of the rising trend in UK house prices. With inflationary pressures easing marginally, investors will now look ahead to tomorrow’s domestic labour market report for further direction. Additionally, the minutes of the last BoE policy meeting tomorrow will be closely scrutinised by traders for hints on any conflicting views regarding the policy stance expressed by MPC members. Meanwhile, fresh doubts about the possibility of the Fed scaling back QE measures in this month’s policy meeting weighed on the Pound-US Dollar pair yesterday following a mixed set of economic data from the US. With the outcome of the two-day FOMC meeting due tomorrow, today’s US consumer price inflation print may have a bearing on the Fed policy decision and will be keenly eyed by investors in the session ahead. Today’s domestic CBI trends survey will offer insights into the state of manufacturing activity towards the end of 2013.

US Dollar – US Markets

The recent weakness in the US Dollar has continued in today’s session, with the greenback trading broadly lower against its peers ahead of the two-day FOMC monetary policy meeting beginning today. Against the backdrop of the largely upbeat economic data lately, especially the surprisingly buoyant labour market and retail sales reports, today’s domestic consumer price inflation numbers will be closely followed by investors in ascertaining the central bank’s likely policy stance going forward. Although the consumer price inflation remains below the Fed’s target rate, a higher-than-expected rise in inflation could possibly weigh on the Fed’s policy stance. Meanwhile, the greenback nudged marginally higher against the common currency yesterday following the release of an upbeat industrial production report which showed that output rose the most in nearly a year for November, indicating that the US economic recovery is gaining traction heading into 2014. However, the unexpectedly weak manufacturing PMI print for December limited the upside in the greenback yesterday.

Euro – European Markets

After moving higher in early trading session yesterday, the common currency pared its gains against the US Dollar later in the session following a mixed bag of economic releases in the US. Meanwhile, manufacturing PMI reports released earlier in the day showed a more than expected expansion in the Euro zone and German manufacturing sector for December, although the weak services PMI prints dampened market sentiment. Reflecting on the weakness exhibited by the currency bloc’s macro data lately, the ECB President, Mario Draghi, opined that economic recovery in the Euro zone continues to remain fragile, as measures implemented by the central bank to spur the economy will require more time to take full effect. Meanwhile, the single currency is trading higher against the US Dollar in today’s trading session ahead of the release of forward looking sentiment indices in Germany and the Euro zone, along with the revised Euro zone inflation report scheduled later today. While inflation numbers are unlikely to show much variation, sentiment indices, which are expected to show an improvement, will further lift the Euro against the greenback in the session ahead.

Other Currencies – Highlights

The Australian Dollar has remained under pressure against its peers this morning after the minutes of the latest RBA policy meeting revealed the possibility of further rate cuts, if needed, amid an “uncomfortably high” Australian Dollar. The central bank’s expectations of below trend economic growth during the next year also weighed on the Aussie Dollar. Additionally the Treasurer, Joe Hockey, while unveiling the mid-year economic and fiscal outlook report, warned of drastic cuts to government spending citing projected budget deficits to the tune of $68 billion over the next four years. The Treasurer’s gloomy projections further added to the recent spate of weak domestic economic data. Meanwhile, market participants will keenly follow the testimony of the RBA Governor, Glenn Stevens, to the House of Representatives Economic Committee later tonight for his views with regards to economy and policy. Additionally, a raft of important economic news flows emanating from both sides of the Atlantic will drive the Aussie Dollar’s movement against the majors in today’s session.