pile of pound coins

Sterling rallies as CPI figure continues to rise

14th June 2017 Market Update

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🇬🇧 GBP – Yesterday was a relatively good day for the pound and from the start of the UK trading session to the end we saw just over a 0.5% gain against both the euro and the dollar. The UK CPI figure came in higher than expected at 2.9% and could have potentially weakened the pound, as we moved even further away from the target figure of 2%. This was expected by many, because real wage growth is not tracking inflation. It was obviously taken as a positive however, as it increases the chance of the Bank of England increasing interest rates further down the line.

PPI fell 1% to -1.3%. Recent price declines for petroleum coke and other refined petroleum products leaving the factory gate have been offset by rising prices for food products and computers, electrical and optical equipment.

Today we have average earnings being released at 09:30am which are expected to remain the same at 2.4%.

🇪🇺 EUR – There was no data of note out from the euro yesterday, which is summed up by the two main pieces being French Non-Farm Payrolls and German ZEW economic sentiment which unsurprisingly had no impact on the markets.

From a political stand point Macron and Theresa May met yesterday over in France as they were speaking at a joint news conference. Macron said ‘The door is always open.’ He echoed the words of German Finance Minister Wolfgang Schaeuble who said the UK could change their mind about Brexit. This shows that the UK is still valued by the major economies in Europe and may give hope to the ‘remainers’ that a soft Brexit will be mutually agreed.

Today we expect to see much of the same as there is once again nothing of note coming out from the Eurozone.

🇺🇸 USD – The dollar PPI figure came in 0.5% lower than predicted at 0%. Final demand prices rose 0.5 percent in April and edged down 0.1 percent in March. In May, a 0.3-percent increase in the index for final demand services offset a 0.5-percent decline in prices for final demand goods. As mentioned above, the dollar came under pressure from the pound yesterday.

At 1:30pm we have the CPI Figures coming out which are forecast to stay the same at 0.2%, and retails sales which are forecast to drop 0.3% to 0.1% which could put pressure on the dollar if this comes in as expected.

At 7:30pm we have the FOMC’s press conference. investors may be surprised if the Fed does not raise interest rates from 1 to 1.25% today. Rate setters are worried that unemployment of just 4.3% portends inflation, if this is the case the greenback may claw back the ground it lost on Sterling in yesterday’s trading session. The gains may well be short lived as economists believe Yellen could push back on scepticism about the need for another rate hike this year though.

 

Key Announcements

🇺🇸 USD
1:30pm – CPI (Previous 0.2% expected 0.2%) Retail Sales (Previous 0.4% expected 0.1%).
2:30pm – FOMC Press Conference

🇪🇺 EUR
10:00am – Employment Change (Previous 0.3% expected 0.3%).

 

Our View: With limited data coming out from both the Eurozone and the UK today we are expecting the pairing to remain fairly flat across the UK trading session. It may be a different story for the dollar if Yellen is successful in suppressing talks of another interest rate increase in the Feds press conference and the dollar may weaken off against the pound mid-afternoon, meaning Sterling could gain further ground for a second day in succession.

 

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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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