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  • richard evans

GBP lower after a surprise drop in inflation this morning

Good morning


Yesterdays EU inflation was in line with expectations and we saw little reaction in the markets as a result.  CAD inflation in the afternoon was not in line, coming in at 3.1% against 2.9% expected, while the core reading was 2.8%, up from 2.7% last time.  CAD pushed a touch higher, USDCAD trading down from 1.3385 to 1.3340 as the market decided that rate cuts would be off the table for longer.  However the move wasn’t as significant as I’d have imagined, particularly given we also saw reasonable USD selling through the day.


That USD selling saw GBPUSD trade up to 1.2760, EURUSD to 1.0985 and USDJPY back down below 144.00 to a low of 143.75.  By the London close we were off those highs but the theme of a weaker US dollar is not going away.  GBP has underperformed EUR a smidge with GBPEUR back to 1.1600. 


This morning UK inflation took a surprising and much needed drop, with headline coming in at 3.9% against 4.4% expected, and core managed to drop to 5.1%, some 0.5% lower than expected.  GBP is lower as a result, GBPUSD has traded back to 1.2645 from a high yesterday of 1.2760, while GBPEUR dropped to 1.1540, some 90 pips lower than yesterdays highs and the lowest levels seen so far in December.  Both pairs currently 1.2660 and 1.1550 respectively.  Our inflation rate may be heading in the right direction but is still above the comparative readings from EU and US, hence BoE is likely to be the last central bank to act to cut rates. 


We’re not done with UK data just yet.  Friday brings GDP and retail sales, neither expected to be much good but it is the retail sales number I fear for.  Still, my wife remains on first names terms with most delivery drivers so I presume she’s doing her best to single-handedly prop up the sales data.


In other news, an unfortunate French couple sold an old item from their home to a dealer for EUR 150 which actually turned out to be a rare African mask.  It went on to be sold at auction for EUR4.2m.  They sued, saying the dealer had misled them as to the value of the mask, but yesterday lost their case.  A bit harsh I think, the judge suggested they should have known its value, which their lawyer said sets a bit of a precedent about whether seeing one professional is now ever good enough.  The dealer had allegedly gone back to the couple with an improved offer of EUR300,000, which was the value the auctioneers had put on it,  but they declined.


In sport, I was sorry to see that Nottingham Forest and Steve Cooper have parted ways.  I’m not a Forest fan but have always liked them, perhaps from watching them play in Europe when I was a youngster.  I also admired Cooper who did a lot for the club, including getting them promoted into the Premier League, and many fans will be sad to see him go.  One win in fifteen matches and one position off relegation isn’t quite good enough these days. 


Port Vale’s dreams were shattered by Middlesborough in the EFL cup quarter finals but its been a great run for them.  Chelsea and Fulham also make it through, both on penalties, while Liverpool take on West Ham this evening to decide the last semi-final place.


It’s a fairly limited calendar today but still not quite time to settle back and put our feet up.  I’m toying with the idea of looking at some upside EURUSD or GBPUSD trades to take us into the new year, just in case we do have some further USD selling.  I’ll report back if I find anything, or call up if you wish to discuss.


-  14.00 ECBs Lane speaks

-  14.00 SNB quarterly bulletin

-  15.00 US consumer confidence, existing home sales

-  15.00 EU consumer confidence


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