Inflation is the Buzzword Today
Inflation is the key highlight in today's economic docket on both sides of the Atlantic, starting with the release of monthly report on consumer price index (CPI) in the UK, followed by its equivalent in the US. The just out data showed that British consumer prices rose above expectations in September. On an annual level, it witnessed its biggest jump in 2 years.
Later in the US, market participants will watch out for indications on whether the nation’s inflation is strong enough to support a Federal Reserve (Fed) rate rise later this year. A report on US home-builder sentiment is also due today. The Eurozone witnesses a light day today on the economic data front.
Pound Sterling – UK Markets
The Pound is trading higher against the US Dollar and the Euro this morning, after the just out data showed that UK’s consumer prices surpassed expectations in September. And on an annual basis, the CPI hit a 2-year high as a weaker Pound drove up the cost of imports. Looking ahead, investors will confront some important macroeconomic releases this week, including the nation’s jobs report and monthly retail sales figures.
Yesterday, Sterling came under renewed pressure, following reports of discord at the heart of the UK government over Brexit. Given the sensitivity surrounding Brexit, any untoward statement can send the Pound tumbling. Separately, the Bank of England Deputy Governor, Ben Broadbent, stated that the Pound’s slump acts as a “major shock absorber” that will help limit damage to the economy. He also stressed that the central bank has no plans to intervene in currency markets to boost the Sterling’s value.
US Dollar – US Markets
The US Dollar weakened across the board yesterday, after the NY Empire State manufacturing gauge unexpectedly deteriorated in October. The headline number fell deeper into negative territory, compared to expectations for a recovery. In other economic news, US industrial production rebounded in line with market expectations in September led by an increase in production of consumer goods and construction materials, indicating that the industry is gradually recovering from a prolonged spell of weakness. Separately, the US Fed Vice Chairman, Stanley Fischer, indicated that the central bank was nearing its employment and inflation targets while warning against making hasty changes to the policy framework in an effort to boost nation’s economic growth.
The greenback is struggling to recover from its losses this morning. Market participants will watch US CPI and the NAHB housing market index later today for further insights on the timing of an interest rate increase by the US Fed.
Euro – European Markets
The shared currency is trading mixed against the greenback and the Pound this morning. There’s no economic data to report today, but things will get serious as the week progresses. The European Central Bank's monetary policy meeting in Frankfurt will be the highlight, with Mario Draghi expected to offer fresh clues on the time frame of its €80.0 billion monthly asset buying programme, which is currently scheduled to run until March 2017. The Eurozone’s construction output and consumer confidence index will also be with us by the weekend.
Yesterday, the Euro held the upper hand against its major counterparts, as Eurozone inflation accelerated in September to its highest level since late 2014, indicating that measures taken by the ECB to prop up the region’s economy are reaping benefits. Higher prices in restaurants and cafes in addition to an increase in rent and cigarette prices helped push up inflation during the month. Meanwhile, annual core inflation held steady in September.
Other Currencies – Highlights
The Australian Dollar has extended its previous session gains against the greenback this morning as the US Dollar continues to retreat on the back of soft manufacturing data. Earlier in the session, the Reserve Bank of Australia’s (RBA) October meeting minutes indicated that there’s a high level of uncertainty in Australia’s labour and housing markets. Further, the minutes drove home the importance of the upcoming domestic price figures for the September quarter, which would enable the central bank to provide its updated inflation outlook report.
Separately, Philip Lowe, while delivering his maiden public speech in his new role as the RBA Governor, indicated that Australia’s inflation is likely to remain near 2.0% for the next 2 years at least. He further added that weak inflation was posing a risk to conventional monetary policy, but remained optimistic that flexible rate targeting would help the nation achieve price stability. The RBA’s target band for inflation is 2-3%. Going ahead, other economic releases this week include Australia’s Westpac leading index, unemployment rate and the NAB business confidence index.