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GBP lower following UK inflation numbers

richard evans

Good morning

 

I’ll start with the big news.  GBP has crumbled after the UK inflation release this morning as pretty much all CPI, PPI and RPI headlines came in lower than expected.  The market had been looking for headline CPI of 1.9% and core CPI of 3.4%, these both came in 0.2% lower at 1.7% and 3.2% respectively. 

 

GBPUSD, which had been trading happily around the 1.3070 area since the London close, gapped lower 50 pips immediately and has since fallen back further, now 1.2985.  Similarly GBPEUR had comfortably regained the 1.2000 area only to slip back to the 1.1940, GBPJPY dropped from 195.20 to 193.75 and other GBP crosses are also marked lower.

 

The headlines made great reading and on the face of it should open the door for BoE rate cuts, as Bailey had recently mentioned.  It may not be quite that simple, a lot of the decline in CPI is down to lower fuel prices and lower air fares, which aren’t really BoE’s main areas of interest and they have, in the past, overlooked such volatile items.  However the market for now is taking it as a sign that Bailey’s recent ‘more aggressive’ rate cut comments could prove to be more than just words.  Market now pricing in around 75bps of cuts over the next three meetings.  BoE still have Reeves budget to deal with before any decisions can be made.

 

Yesterday CAD weakened, also driven by lower inflation numbers, which many see as the green light for a 50bps cut next week. USDCAD traded up to 1.3835 but has since returned to 1.3780, GBPCAD was up at 1.8100 but this morning’s UK data has sent that plummeting to 1.7895.

 

Overnight, NZ CPI was 2.2% as expected, down from 3.3% last month.  A 50bps cut by RBNZ at their November meeting looks more than possible.  Indeed, there has been some talk that the rate cut could be as big as 75bps.  Still, as with other currencies, NZD has lost ground against GBP, trading down from an overnight high of 2.1620 to 2.1420. 

 

I have seen reports that Israeli PM Netanyahu has arrived at a ‘secure facility’ from which he is expected to launch an attack on Iran.  He has assured the US that they will not hit oil or nuclear facilities.  This does suggest an attack is imminent but the reports could be misleading, Israel have hit targets in Beirut again this morning for the first time in several days, so perhaps his movements were related to that.

 

In sport, therre are more races coming up in the Americas Cup as GB look to reduce their four point deficit.  NZ are currently only three points away from victory.

 

Elsewhere in sport, Thomas Tuchel has been named as the next England manager.   A good choice?  We really won’t know for a while yet.

 

-  20.40 ECBs Lagarde speaks

-  00.50 Japan trade

-  01.30 AUS unemployment

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