Sterling swells on surprise inflation results

15th August 2019 Market Update

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🇬🇧 GBP –  Inflation results surprised markets yesterday morning which resulted in gains for the Pound. Expectations were for a slight dip in the CPI measure below the Bank of England target but instead the July readings posted a figure just above the target at 2.1%. This provided a couple of hours of Sterling gains before the market recalled that Brexit risks are likely to result in the Bank of England cutting rates sooner than raising them. However, the Pound finished the day strongly to reach multi-day highs against the Euro.

Today features Retail Sales data for July at 09:30 which is expected to fall. With the economy dipping into negative territory in the latest reading, market attention will be looking for how consumers have reacted with their spending habits. This could end the Sterling rally.

🇪🇺 EUR – The Eurozone released its GDP figures for Q2 yesterday which matched with the previous readings and the expected level. However, the German results earlier in the morning fell sharply into contractionary territory adding to concerns for the health of the European economy. Industrial Production and Employment change results for the Eurozone were both negative for the single currency and this weakened the Euro, adding to Sterling’s gains.

The calendar is empty for the Eurozone today due to a number of bank holidays which means that it will be dependant on external currencies to dictate its moves.

🇺🇸 USD –  The US did not have any data releases of note yesterday but market attention was grabbed by the inversion of the yield curve in the US which tends to be a reliable indicator of a forthcoming recession. Analysts will be watching closely in the coming weeks and although it would seem negative for the US Dollar, it may well benefit as a safe haven currency if there are concerns surrounding world growth.

There is a range of low and mid tier data for the US today which is unlikely to impact on currency movements. However, Retail Sales and the Philly Fed Manufacturing Survey could produce volatility if the results are sufficiently different to the expected figures.

 

Summary:

GBP: The pound gains on higher inflation readings
EUR: Single currency loses ground against major peers
USD: Indicators of recession appear but Dollar could benefit


 

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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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