Pound Spikes After Inflation Hits 2.9%
Today is a great day for the Pound as the British currency has hit a one-year high against the US Dollar and a one-month high against the Euro. The reason for the lift-off was a series of data released by the Office for National Statistics (ONS), which showed that UK inflation in August was at 2.9%. The figure was higher than the 2.8% reading that analysts were expecting. Market experts are optimistic that the Bank of England (BoE) will now have to consider raising borrowing costs.
Twelve Conservative MPs said that they are ready to vote against the Brexit bill, if significant changes on it aren’t made. John Penrose, a Tory MP, warned against a potential power grab by government ministers through “Henry VIII” powers. Penrose said that “the current draft of the repeal bill gives a lot of power to ministers so we can deliver Brexit, which is essential, but it cuts parliament’s role down.”
Theresa May has managed to pass through the repeal bill in its second reading last night, but she would struggle later as, at the moment, there are 59 pages of amendments to the EU (Withdrawal) Bill. Labour has published its amendments to the bill which concern the delegated or “Henry VIII” powers, devolved powers, EU-derived rights and protections, and parliamentary agreement on any transitional arrangements.
Pound Sterling – UK Markets
Today, the Pound edged up against the US Dollar, hitting a one-year high, with the exchange rate set at $1.32. Sterling strengthened against the Euro, hitting a four-week high, with the exchange rate set at €1.10. The ONS released a series of data regarding the British economy, which immediately boosted the Pound.
According to the ONS, UK inflation in August came in at 2.9%, on year-to-year basis. The August’s inflation figure is 0.3% higher than July’s and 0.1% higher than market analysts anticipated. The inflation reading matched a recent peak at 2.9% in May, which was at that time a four-year high. On a monthly basis, inflation in August rose by 0.6%, 0.1% more than what City experts were expecting. Main reasons for the rise of inflation were clothing and travel costs.
Clothing prices increased by 2.4%, on a monthly basis, along with fuel costs and air fares because of the summer holiday season. Economists noted that clothing prices rose by 4.6%, on a year-to-year basis, which is a rate that hasn’t been recorded since 1989. The ONS data showed that the UK’s retail price index grew by 3.9%, on an annualised basis, in the last month of the summer with the result being 0.2% higher than expected. The producers price index (input) increased by 1.6% in August, on a monthly basis, rallying from the 0.2% drop recorded in July.
US Dollar – US Markets
The US Dollar fell against the Euro, with the exchange rate set at €0.83. The US Dollar Index (DXY) also dropped coming in at 91.85, but still close to the 92.00 psychological mark.
United Nations security council imposed tougher sanctions on North Korea as a punishment for its missile and nuclear test during the last two weeks. Initially, the US wanted the UN to impose a complete oil embargo and a partial naval blockade, but later it diluted its draft resolution trying to win support from Russia and China. Finally, the security council banned North Korean textile exports and capped crude oil imports. This is the ninth time that a sanctions resolution against North Korea has been unanimously adopted by the 15-member UN security council since 2006.
Later in the day, Apple is going to launch the new iPhone X alongside the cheaper iPhone 8 and 8 Plus. This will mark the tenth anniversary since the first iPhone was revealed back in 2007. Leaks have put a $1000 tag on the new iPhone X, setting a new bar for premium smartphones. Market analysts suggest that the X model will remain in severe short supply for a while as Apple’s suppliers won’t be able to provide the necessary number of units. However, some investors believe that Apple, which is one of the leading companies in the tech sector, will soon need to present new products, as consumers already hesitate to change their smartphones every year according to market surveys.
Euro – European Markets
The Euro rallied against the US Dollar with the exchange rate set at $1.19. Victor Constancio, vice president of the European Central Bank (ECB), will deliver a speech in Frankfurt, later in the afternoon.
European stock markets opened higher in the morning, following the rise of Asian markets as fears for renewed tension between North Korea and the US eased. Worker unions in France have launched a day of strikes and protests against Emmanuel Macron’s labour reforms. President Macron called the people who are on strike “slackers” and was accused from political analysts for “throwing oil in the fire with his choice of words.” Macron has vowed to simplify the labour code, thinking that this could be the key for reducing the unemployment rate, which currently stands at 9.5%.
A report by Societe Generale said that the Eurozone’s 2.2% GDP growth in the second quarter of the year was the best in over six years. However, SocGen analysts called the pace of growth “unremarkable” because market data indicated that growth could be stronger and that the softness of credit growth is no longer a barrier for it. The report suggests that, regardless of what the ECB hasn’t decided yet, the markets are confident that the ECB will proceed with its tapering plan.
Other Currencies – Highlights
Sterling jumped against the Australian Dollar, trading at 1.65 AUD. The National Australia Bank (NAB) published a survey that showed business conditions in Australia climbed to the highest level since 2008. NAB’s analysts note that there was a jump in employment in August and suggest that if employment conditions are maintained in the same levels, it could boost job creation and result in the drop of the unemployment rate. NAB’s experts also report that downbeat consumer confidence is a point of concern.
The Pound lost a bit of ground against the New Zealand Dollar, trading at 1.81 NZD. Labour leader Jacinda Ardern said that a new Labour government would want to be part of the Trans-Pacific Partnership (TPP) trade deal, but only if it bans foreigners from buying existing homes. The exception which Ardern proposes aims at cooling down the housing market and making the purchase of a house cheaper for the country’s citizens. A poll showed that the governing National Party is backed by 47.3% of voters, while Labour dropped to 37.8%.
Sterling advanced against the Japanese Yen, trading at ¥145.45. Wells Fargo economists suggest that the Bank of Japan (BOJ) will remain committed to its monetary policy measures for the foreseeable future. They stress that faster economic growth has yet to translate into an uptick in inflation, which hovers near 0%.