Raphael Sonabend, FX Analyst
As UK CPI saw a record low yesterday and the pound continues on a downward trend, analysts are now asking the question if Sterling has seen its highs for the next few months. UK CPI saw a record low yesterday as the final result registered at 0.0%, not quite deflation but teetering on the crucial edge. This result was not altogether surprising as Carney had previously warned that CPI could fall this low and the real speculation now is whether the BoE will vote to cut rates in their next meeting. This is a real possibility but perhaps unlikely given their unanimous votes to hold rates in the last meeting, even still analysts will be keenly scrutinising every upcoming interview with Carney for clues about a possible rate cut. US CPI saw the first monthly rise in four months, registering at 0.2% and perhaps signifying the beginning of the end of poor figures that were caused by a harsh winter. A quiet day ahead will focus on German Ifo business climate at 9:00 and US core durable goods orders at 12:30. With the German figure set to increase, euro gains could push on for at least another day.
GBP/EUR: Currently trading at 1.3572
Yesterday saw UK CPI falling below expectations to 0.0% and PPI input rising from -3.6% to 0.2%, but below the 1.6% forecast. The drag in CPI was (perhaps surprisingly) not down to falling oil prices but instead recreational goods, food and furniture & furnishing. For the first time on record CPI fell to 0.0% and with the current trend being downward, the next stage for CPI is likely to be deflation. GBP/EUR fell to 1.356 before Sterling resisted further gains and pushed the rate back towards 1.36.
Today’s trading will focus on German Ifo business climate this morning, forecast to improve the euro’s gains are likely to continue through today’s session.
GBP/USD: Currently trading at 1.4874
A CPI filled day yesterday saw the rate spike and fall between ranges of over a cent after each release. UK CPI in the morning saw a fall to 0.0% but the pound quickly recovered this lost ground before US CPI figures saw the rate jump to 1.4984 before falling to 1.4831 throughout the remainder of the day. US CPI rose 0.2% monthly and core CPI saw a similar 0.2% increase. This CPI figure signified the first rise in four months and is the first step toward stabilisation as growth picks up. The result is also a strong sign that the negative effects of a harsh winter have been overcome.
Today’s focus will be on US core durable goods orders at 12:30. Forecast to rise from 0.0% to 0.3%, this is likely to lend a hand to further dollar strength.
EUR/USD: Currently trading at 1.0956
The euro had a good morning yesterday, with German Manufacturing PMI data impressing, but managed to lose its gains later on in the afternoon on the back of higher than forecast US core CPI figures. This morning has seen some gains for the euro, in anticipation of the German Ifo Business Climate survey results, which is expected to increase from the last reading.
The most important announcement out of the US today comes in the form of core durable goods orders, released this afternoon. With the figure forecast to increase by 0.3%, we could see the greenback strengthen and temporarily bring to a halt the euro’s recent gains.
GBP/AUD: Currently trading at 1.8896
With UK CPI falling to 0.0% yesterday on a yearly basis, we saw the recent downward trend continue as higher-yielding currencies continued to strengthen. Strong US CPI data followed, recording a figure of 0.2% which we saw the rate move over a cent in favour of the Aussie.
With no data scheduled for release from either side of the pairing today, traders will be keeping an eye on US core durable goods orders, expected to climb 0.3% which could strengthen the Aussie further.
GBP/NZD: Currently trading at 1.9473
Slow gains were made by the Kiwi throughout yesterday’s session before increasing in momentum prior to the NZ trade balance data, which actually resulted in a figure far below expectations. With 375M forecast, the result of 50M came as a surprise to traders who quickly sold off the NZD, seeing the rate shoot up a cent before continuing to climb in Sterling’s favour. This low result came after dairy exports saw a 41% fall compared to the previous year.
A quiet day ahead could provide the setting Sterling needs to begin recovering lost ground against the Kiwi. After a poor trade balance figure last night, trading is likely to continue in the pound’s favour.
GBP/CAD: Currently trading at 1.8584
The UK CPI figures saw limited impact on this pairing, which was more heavily influenced by the US CPI data that was released soon after. Whilst continuing to fall in the Loonie’s favour, the pound saw slight strength just prior to the US CPI release.
The pound opened today’s session with the upper hand and has been slowly posting gains against the Loonie. A quiet day ahead may allow these advances to continue throughout.
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