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Attention on UK inflation early tomorrow morning

Good morning

All in all a fairly quiet session yesterday, ECB officials still sound concerned about the limited slowdown in core inflation but do warn of the risks of the rate rises already seen in terms of a recession and that the end of the rate rise cycle, while not yet over, perhaps isn’t too far away. EURUSD currently at 1.0930.

There doesn’t feel like a great deal of good news from the UK, as we slip down the table in terms of global economic competitiveness, moving from 23rd to 29th out of 64, according to a recent survey, while the risks of higher mortgage rates are also in the headlines. However, perhaps some better news as UK food and drink makers report a drop in production costs, the first such drop since 2016, although it will take some time for this to be seen on the shelves. GBPUSD loitering around the 1.2800 area, while GBPEUR is still just above 1.1700.

RBA minutes overnight gave a less hawkish message than the recent surprise rate rise implied, saying the decision had been finely balanced. AUD weakened as a result, GBPAUD now at 1.8800 having been near 1.8660 pre-announcement.

Elsewhere, US SecState Blinken met with China’s Xi, both talking of the desire to stabilise relations and to overcome difficulties although Xi did make it clear that they wouldn’t appreciate the US trying to shape, or even limit, China’s development. China’s central bank cut their 1yr Prime Loan Rate by 10bps to 3.55% and the 5 year LPR by 10bps to 4.2%. There had been some thinking the 5yr rate would see a larger reduction. USDCNY fix at 7.1596, another high in this cycle.

USDJPY is at 141.85, it did make a move to 142.25 overnight but comments from Japan FinMin Suzuki seemed to prevent further yen weakness for the time being, making it clear he was watching FX moves closely and will take appropriate action if necessary. GBPJPY 181.50, EURJPY 155.05.

Not the most exciting calendar today but early tomorrow morning we will have the latest UK inflation numbers. These are expected to show a decline in the YoY rate to 8.5% from 8.7% last time. Anything lower than before is a good thing but our inflation is still well above the US and EU. The release, however it comes out, is unlikely to deter BoE from raising rates at Thursdays meeting. Difficult to see GBP turning particularly weak for the time being.

I awoke this morning to some rather heavy rain and loud thunder. It has been promised for a while but we’d not really seen any of it until now. Amazing how grass can turn from brown to green almost in an instant, I’d spent a fair bit of time weeding over the weekend and am pleased to have done so. I reckon I’d almost have been able to watch them grow after a bit of rain.

A big day for me today. My daughter has her last A level exam, which means that we will have no children at school for the first time since 2008 or 2009 (I probably should know). Life seems to be full of milestones and this is quite a big one. My youngest, who as I have said is not really the ‘A level’ kind, finished his exams last week and promptly found himself a job in a local pub/restaurant where, after a shift of just a few hours he seems to have already got himself a pay rise. Keep it up!

- 13.30 US housing starts, building permits

- 16.45 Feds Williams speaks

- 18.10 ECBs de Guindos speaks

- 22.00 NZ Westpac consumer survey

- 00.50 BoJ minutes

- 07.00 UK CPI, RPI, PPI

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