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Pound bolstered following UK inflation rise

22nd March 2017 Market Update

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🇬🇧 GBP – The pound was bolstered yesterday after UK inflation rose to 2.3%, the highest since September 2013. The rise was largely attributed to a rise in food prices, rising by 0.3%, and fuel prices, rising by 1.2%.

The news added weight to MPC member Kristin Forbes’ vote in last week’s Bank of England meeting, that perhaps the bank should raise the base rate to 0.5%.

We saw GBP/USD reach a new one month high, however gains on GBP/EUR were limited, on account of an also strong euro.

No economic data out today, as markets look to Thursday’s potentially encouraging retails sales data.

🇪🇺 EUR – The single bloc currency was in demand with the currency reaching a new 6 week high against a weakening US dollar. Analysts attributed the gains to centrist candidate Emmanuel Macron performing well in France’s first televised presidential debate.

No economic data again today to note, so further strength in the euro would be down to political developments.

🇺🇸 USD – Widespread pressure on the US dollar continues, following the FOMC’s rate statement from last Wednesday. One of the reasons cited by traders could be due to headline inflation, outstripping yields on dollar denominated debt, thus leaving real rates too low for overseas investors.

Real rates, which are calculated by 10 year Treasury yield minus core inflation, is in negative territory despite generally positive growth outlook for the economy.

The only data to note today from the US is existing home sales for February, which are forecasted to show a slowdown.

 

Key Announcements

🇺🇸 USD
Existing Homes Sales – Forecasted to drop to 5.57m.

🇳🇿 NZD
RBNZ Interest Rate Decision – Forecasted to remain at 1.75%.

 

Our View:The only notable data during European trading hours will be the existing home sales from the US, which as above, is forecasted to show a slowdown in Sales in February. This can only continue to add to the weakening of the US dollar. Markets will be eyeing up the highs seen in February before we see US dollar buyers come back with any gusto.

Thus gains for the pound against the US dollar seem more likely than against the euro. This is at least until tomorrow, when we have the release of UK retail sales.

 

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Darren Kilner

Darren Kilner

Darren is Head of Dealing at FairFX. Darren lives and breaths FX, his Mastermind topics are G8 currencies and economic forecasts.

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