18th October 2017 Market Update
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?? GBP – Yesterday we had UK inflation data come in as anticipated at 3% and despite BoE Governor Carney’s hawkish speech shortly after, Sterling failed to make any significant climb. Carney continued to say that the BoE expects inflation to rise a bit more, potentially over 3%, before peaking and dropping off in the next couple of months. He added that the accelerated increase in inflation, which gives the illusion that the future of Sterling will be bleak, is ‘solely’ down to the recent fall in the value of Sterling.
Another possible reason why Sterling did not pick up may have to do with average earnings, being released today, which are expected to stay flat. Perhaps if average earnings come out higher than expected we could see some movement here. No other red flag data out for Sterling today and all eyes continue to focus on Brexit negotiations. This again was raised in Carney’s speech, where he pointed out that the risk involved in wading the unknown waters of Brexit requires flexibility in regards to keeping inflation on track.
?? EUR – European inflation was also released yesterday and remained flat at 1.5%, as anticipated. There is no significant data to be released today although ECB President Draghi is to speak at the ECB conference in Frankfurt this morning. Traders will be keeping a keen eye on this for any indication of a monetary policy move. The council of the EU is set to start discussions with the European Commission on a workable trade deal with the UK, so that once they UK and the EU agree on a divorce settlement they can kickstart the trade deal talks.
?? USD – The greenback continued to gain strength throughout yesterday, making the most of the dip off in Sterling. US data out today includes building permits, expected to decrease to 1.25m and crude oil inventories, expected in at -4.7m. Additionally, FOMC member Kaplan, and Fed Dudley will be partaking in a panel discussion this evening in New York.
09:30am – Average Earnings Index, expected at 2.1%
09:30am – Unemployment Rate, expected at 4.3%
09:10am – ECB President Draghi speech
13:00pm – Building Permits, expected at 1,250,000
15:30pm – Crude Oil Inventories, expected at -4,700,000
Our View: With little in the way of data out today, currencies are anticipated to continue on their trajectories. Sterling is likely to continue on its turbulent spiral amidst Brexit uncertainty and ambiguity from the BoE on interest rate movement, although a higher than expected figure from today’s average earnings data could push the pound up a little.
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