UK Inflation in Focus

15th January 2020 Market Update

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?? GBP - Sterling fell further yesterday morning dropping to a seven-week low against the euro and lowest against the dollar this year. The fall came after the Bank of England released indicators of a potential rate cut this month due to the worrying state of the UK economy. Four BOE policymakers have released statements that if economic data doesn’t improve significantly, they would have to take action. Money markets are now pricing a 25 basis point cut at 50%, 0.75% up from the 20% chance on Friday.

Boris Johnson spoke with the BBC yesterday and admitted that the UK might not strike an EU trade deal this year. Today MPC member Saunders spoke at 08:40 also indicating the possibility of a rate cut, this has caused continued sterling weakness. CPI figures are also released at 09:30, this is also another key piece of data for the UK when voting on interest rates.

?? EUR - The euro has fallen to its lowest mark against the Swiss franc in almost three years after the US added the currency to its watchlist of currency manipulators. The FT looked into ‘trade secrets’ yesterday after the Brexit transition continues. The European Commission continued to exert a 2020 trade deal is “basically impossible”. However, for all of the EU’s fear of an aggressive competitor, the UK has resulted to be an increasingly large part of the EU’s persistent trade surplus which has continued worry investors of the strength of European economies.

?? USD -  As already stated, the US added Switzerland to its watchlist of currency manipulators as the SNB (Swiss National Bank) bought huge amounts of foreign currency to dampen the demand for the franc. The states released their CPI figures which as expected, resulted at 0.2%, this has no impact on the market. Today marks the completion day of the Phase one US-China trade agreement. This is set for an 11:30 (US time) ceremony at the White House formalising the deal. Key points to watch out for today is two FOMC members Harker and Kaplan speak at 17:30 and 18:00.

Summary:

GBP: MPC member Saunders also hints at interest rate cut
EUR: No significant data
USD: US inflation comes in as expected

 

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