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UK inflation on the surge again

by FC Exchange , 16 July 2014 09:32

GBP

The rate of UK inflation rose sharply in June, pushed up by higher clothing, footwear, food and non-alcoholic drinks prices, official figures show. The Consumer Prices Index rose to 1.9%, up from 1.5% in May, according to the ONS.

Inflation has remained below the target of 2% for seven consecutive months now which is directly in line with an interest rate hike. The potential of this happening sooner rather than later is very high now.

Annual house price inflation hit 10.5% in May, the highest rate for four years. That is up from 9.9% in the previous month. Once again, the market was in large driven by London, where house prices rose by a record 20.1% over the year, compelling to say the least.

The pound jumped against the dollar following the inflation figures, climbing as high as $1.7191 which was a 0.7% improvement from Monday’s levels. This never-ending sterling strength against the greenback continues.

Today brings another big day from the UK as we have Claimant Count Change and ILO Unemployment rate expected to read at 6.5% later this morning.

EUR

Europe continues its reputation of not achieving its monthly consensus figures in the form ZEW Surveys for economic sentiment. Germany’s reading was 27.1 (1% from target) for the month July and Europe as whole 61.8. (0.5% from target).

This data on parallel with the positive inflation readings from the UK hammered the struggling currency against the pound. The pair broke the 1.26 level again and consistently traded at resistance for the rest of the day.

For the remainder of this week, all you need to keep your eyes on his Thursday’s Construction and Consumer price figures which will be released early morning (9am GMT).

USD

Unfortunately, yesterday’s retail sales report for June from the Census Bureau is a further dampener to the recovery of the US economy and anybody betting on some accelerating, robust US information could be waiting a little bit longer. Retail sales came in at a tepid 0.2% compared to the month prior, the weakest reading since January this year when the Americans had their heaviest snowfall in years.

To add to this; Janet Yellen warned investors at yesterday’s conference of the “stretched valuations" in social media and biotechnology firms. The warning sent US indexes down, with shares of social media firms such as Yelp plunging.

In terms of the US economy overall, Ms Yellen said that she saw "continuing slack" in the US jobs market and warned of long-term unemployment that remained at historic highs. She also said that gains in the housing market had been disappointing, and that despite better-than-expected jobs growth as of late, wages remained stagnant.

Considering it was all negative signs from both Europe and the US this seemed to balance out on EUR/USD pairing yesterday as the crossing traded towards support levels in favour of the greenback and closed the London session at 1.3560.

Today brings industrial production figures from the US and the Fed’s Beige Book later this evening which might lead to volatility overnight.


All eyes focused on Carney today

by FC Exchange , 26 June 2014 14:11

GBP

It was a quiet day on the data front for the UK with no high or medium impact data out yesterday. Following the trend of the week so far trading across the majors remained pretty flat throughout the day, both GBP/EUR and GBP/USD traded in narrow ranges moving less than 0.3% for the day, which considering the recent speculation of the timing of any interest rate rises, is fairly unusual.

Today we only have one high impact piece of data for the UK. We have the BoE Governor Mark Carney’s speech at 10:30am, which is eagerly anticipated to see how he reacts following his grilling at Tuesday’s parliament meeting on the BoE’s forward guidance policy. Investors will look to decipher clues on any potential interest rate rises, as the market has been seemingly pricing in a rate rise before the end of the year following his comments earlier in the month at Mansion House.

EUR

German GfK Consumer Climate beat expectation coming in at 8.9, where it was forecasted at 8.6. The data measures the level of confidence consumers have in the German Economy. The data shows further inconsistency in the Economy with yesterday’s IFO and business climate figures missing expectations. EUR/USD also failed to break a 0.3% range holding above 1.36 throughout the day’s trade.

Today is another quiet day for the single currency with no data out of any significance. The euro will be largely driven by external trading sources and high impact data from the UK and US.

Tomorrow we have a fair amount of data out for the EU so can expect some volatility at the end of the week. The noteworthy data comes in the form of German Prelim CPI figures, French GDP and EU consumer sentiment.

USD

Considering we had a string of high impact US data there was very little volatility throughout yesterday’s trade. The greenback traded range bound against virtually of all its major counterparts, despite Core Durable Goods Orders and GDP data both missing expectation by quite some distance.

The dollar did weaken marginally, breaking through the psychological level of 1.70; however it quickly retraced and traded the rest of the day around the high 1.69s.

Today we have another day filled with data for the world’s largest economy. The data worth noting is the initial and continuing jobless claims, Core PCE Price Index and personal spending, all of which are due out at 1.30pm GMT.


BoE disappoints an overly-expectant market

by FC Exchange , 19 June 2014 10:15

GBP

Hopes were dashed yesterday and as a result Sterling lost some ground against its most traded counterparts. Following Mark Carney’s comments last week and all of the media hype about a rate hike, the time came for the BOE Minutes and MPC Rate Vote. Sterling did again crest the 1.70 wave against the Greenback but this was short lived and retraced upon the release.

There has been a lot of speculation of late that one or more of the MPC members will begin to break rank and push for a rate hike as UK economy continues to perform in a robust fashion. No such luck yesterday as once again 9 from 9 members all voted to keep rates on hold. There was still a relatively hawkish tone within the Banks walls, but as the market digested the minutes, Sterling continued to take losses. A hot topic in the UK of late has been the housing market and that was on the agenda in the BOE meeting – the MPC said that low interest rates created risks to financial stability from the housing market, but that these are best addressed by the FPC next week.

Today we have the release of Retail Sales Figures at 9:30am – although this is considered medium impact it does have some scope to prop Sterling back up again if the figure is exceptional. Given that Consumer Inflation figures came in slightly below expectation, it means that Pounds and Pennies stretch further on the High Street, a good reading is a real possibility here.

EUR

A quiet day on the European Economic Calendar yesterday didn’t provide the Euro many opportunities to start clawing back losses seen across the board. Euro moves were dictated by outside trading sources such as the BOE Minutes and FOMC Data last night.

We did see the release of the Eurozone Construction Output which is a gauge of the output of the construction industry. Coming in at 0.8% for the month and 8% for the year, despite the vast improvement the market didn’t react to it with any great move showing only a 10/15 pip appreciation for the Euro against both Sterling and the Dollar.

We do not have any further discernable data from the Eurozone until Friday afternoon at 3pm which will present us with the results of Consumer Confidence. Although this is not generally considered market moving it is likely that it will be considered a gauge of what to expect moving forward. Since the rate cut, consumers’ confidence in the economy in Europe will have changed somewhat, if confidence is down, we are likely to see consumer spending slowdown in the coming weeks/months.

USD

A busy day on the economic calendar for the US yesterday with the release of the Interest Rate Decision, Mortgage Backed and Treasury Backed Purchase programs, along with the FOMC Economic Projections and the Fed’s Monetary Policy Statement.

As many expected, the interest rate was kept on hold at 0.25% - Although in the minutes we saw a slightly dovish tone with many facets of the press conference left unchanged from the previous, guidance was given to interest rates once again with Fed Chair Yellen again sticking to what we have heard previously, stating that interest rates are likely to remain on hold until next year, once we see a rate rise, the rise will be gradual thereafter; of course dependant on economic activity.

There has been some speculation that the FED would delay another taper on QE this month, however, they went ahead and tapered to $35bn per month, down from $85bn per month in Dec. As a result, the USD incurred losses and gave back all of the ground Sterling had lost against it following the BOE Minutes. The pair is trading at just over 1.70 at time of writing. The economic projections were watched closely last night given that economists have been embarrassingly offside in their forecasts so far this year. US GDP has been revised down to 2.1% for 2014 when originally it sat at 2.9% at the beginning of the year. Yellen did indicate that the USA has seen significant signs of improvement in the economy in the past couple of months and the cold snap is officially over. Based on last night, going into the second half of the year we may well see the US economy gain some sustained momentum, for now though the outlook is bleak.

Today we have the release of both Initial and Continuing Jobless Claims along with CB Leading Indicator.


Searching for clues in the Eurozone Monthly Report

by Mike Steenkamp, 12 June 2014 09:22

GBP

A strong day of trading for Sterling yesterday with the release of ILO Unemployment demonstrating that the MPC were correct in their statements regarding slack in the labour market. The figures released showed that UK Unemployment has fallen from 6.8% to 6.6% in the past three months and that the Claimant Count came down better than forecast at -27.4k. This adds to the feel that the UK recovery is being sustained and the numbers are there to back those claims up.

As a result of yesterday’s figures, Sterling pushed the Euro to a rate not seen since Dec 2012, posting a high of 1.2415 on the day and posting a high of 1.2436 this morning.

We do not have any further market moving data out for the rest of the week now which leaves Sterling open to outside trading sources, however, Mark Carney will be speaking in Mansion House, London at a Bankers and Merchants Dinner – although we do not expect any clues from this. Based on last week after the ECB cut the interest rate, Sterling tried 1.24 before retreating back to 1.23 – with the ECB Monthly Report today; traders will be looking for dangers of a similar trend.

EUR

The Eurozone’s economic calendar was empty yesterday which didn’t do anything to aid the cause of the ailing currency as it posted new losses against Sterling. The ECB’s package of easing measures continue to weigh on the currency and ECB Governing Council member Makuch reiterated yesterday that the ECB would take action if the latest measures are insufficient – also stating that interest rates will remain low for a long time. Mario Draghi and co are not expected to raise interest rates until 2016 or beyond.

Looking at today, we have many data releases from the stronger Eurozone nations. Firstly we have the CPI Inflation figures for France; expectation was rightly muted as the figures released came in unchanged from previous numbers posted. Most importantly for today we have the release of the ECB Monthly report, as mentioned above after the cut in the interest rate last week it will be interesting to see if Sterling comes under any pressure again as the market looks for further clues which were not released in the press conference with Mario Draghi. We also look to Eurozone Industrial Production which is released at 10am which generally speaking is heavily linked to interest rates, even is it is a positive number, given the recent rate cut it is unlikely to solidify the Euro very much, if at all.

Looking at tomorrow, the Euro has another busy day on the data front with the release of German, Spanish and Italian inflation along with Eurozone Employment Change and Trade Balance.

USD

Yesterday proved to be a quiet day for the Greenback as no market moving data was released. Despite the UK’s positive Unemployment numbers the USD stood its ground against the Pound and resisted a break below 0.5952 (1.68) – although that has now happened this morning. Against the Euro, the pair stayed within the tight range we have seen develop recently and did not budge from the 1.35’s due to the lack of data from both economies.

Looking at today we can probably expect a mild level of volatility as the week begins to draw to and end, a busy day in the US with Initial and Continuing Jobless Claims at 13:30 going hand in hand with Retail Sales Figures at the same time. With the USD holding its ground it is likely that positive numbers posted against Retail Sales in particular will be met well by Dollar buyers.

Tomorrow we have the Producer Price Index which is a reading of the average changes of prices in markets of the US by producers of commodities in all states or processing. A high reading here could be enough to wipe out Sterling’s modest gains from this week against the USD. The same principle applies to Reuters/Michigan Consumer Sentiment Index released at 14:55pm.


The Single Currency proves hardy

by Zach Fisher, 09 June 2014 10:17

GBP

Sterling remained largely governed by events elsewhere last week, as the BoE once again remained idle and refrained from altering any current policy, leaving the main interest rate and the asset purchase program on hold.

The BoE issued a very brief statement immediately following the policy meeting, and market participants are speculating that the unusually quiet responses from the central bank the last few months may mean they are switching up their forward guidance policy and possibly gearing up for a surprise rate hike this year. Immediately following the announcement sterling demonstrated a huge rally against the euro, rising to the highest level since 2012, after the European Central Bank expanded stimulus.

Looking forward to this week, expect Sterling’s movement to be dictated by the numerous unemployment data released on Wednesday, which is an important signal of overall economic health due to the fact that consumer spending is highly correlated with labour market conditions.

BoE governor Mark Carney is also scheduled to speak on Thursday, an event which will be heavily deciphered for interest rate clues.

EUR

The most important event of the week last week was the ECB policy decision, which was widely tipped to be the meeting whereby action would be taken in the form of extra monetary stimulus. Because of this the view was widely held that the single currency would fall dramatically over the course of the week. Surprisingly the Euro proved remarkably resilient.

Indeed, the ECB did take action, making an unprecedented move as it cut the bank deposit rate into negative territory, and dropped the main interest rate by 10 basis point to 0.15%. Although this immediately drove the euro down, this weakness turned out to be very brief and the Euro recovered by the end of the session.

The Euros remarkable resilience is actually reducing investor unease, and leading to risk appetite, with investors seeking higher yielding assets in the Eurozone. Analysts argue the market has taken the monetary accommodation as positive for the Eurozone, with Draghi’s commitment pledge to do whatever it takes to bring the Eurozone back to sustainable growth ringing true.

A very quiet week beckons this week, apart from Thursday, which heralds the release of the ECB monthly bulletin and Industrial Production m/m.

USD

The US Dollar was mostly on the offensive last week, although the latest US jobs numbers hampered Dollar strength towards the end of the week. Although the non-farm payment release came in inline with estimates, many market participants feel that the Federal Reserve will now stay on course, and not speed up its efforts to taper or end monetary policy easing.

The figure of 217k jobs added to the economy and a fall in the overall unemployment rate to 6.3% although positive, means that we are unlikely to see an interest rate rise for some time, which should keep the greenback in check at least in the short term.

A relatively quiet week also beckons across the pond this week, although we do see the release of the Retails sales m/m – which is forecast to show a large increase against previous figures released last month, which means that any below expected figure will see the USD immediately on the back foot. This is followed on Friday by the PPI m/m and the Prelim UoM Consumer Sentiment.

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