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  • richard evans

Higher UK inflation gives BoE something to think about

Good morning

Strong US retail sales numbers yesterday had little immediate impact on currency levels, but better than expected industrial production numbers could not hold back the dollar buyers, EURUSD traded lower to 1.1330 and that move has continued overnight, the pair now 1.1300 although there was an unusual spike lower overnight, hitting 1.1265 in a very quick move but quickly regained 1.1300.

GBPUSD also shifted lower at the same time, reaching just below 1.3400, however it bounced this morning as UK headline CPI inflation came in higher than expected at 4.2% and further rises are expected, BoE have said it could hit 5% early next year. GBPUSD hit 1.3475 although currently back to 1.3440. GBP has risen strongly against a weak Euro, EURGBP did dip briefly below 0.8400 (GBPEUR 1.1900), now 0.8415 (1.1880). After leaving rates on hold earlier this month, this reading surely gives BoE the grounds it needs to lift rates next month. EU CPI tomorrow is less likely to spook the markets and ECB are still a long way from having to take any tightening action.

The stronger US dollar saw gains in USDJPPY overnight, the pair rising to almost 115.00, we haven’t been there since March 2017. The move has pushed vols up in USDJPY and yen crosses. EURJPY slid from 129.90 to 129.40 is a straight line but soon recovered, now 129.95.

Reports suggest Germany has suspended certification of the NordStream 2 pipeline which won’t impress Russia at all and will likely see Natural Gas prices push higher. There is some talk of a cold weather snap next week which will hardly help.

I didn’t see a great deal more coming from the Biden/Xi meeting earlier this week, although there is a hope they will hold talks on nuclear arsenals. Relations clearly remain frosty and not helped by Bidens support of a US boycott of the Beijing Winter Olympics over human rights abuses. Athletes can still attend but officials and politicians will not. Meanwhile US are asking China to release some oil reserves to help contain rising prices, this comes as US oil reserves data shows a larger than expected draw, sending WTI up from around $80.00 to $81.30.

Biden has said we will hear news of his Fed Chair nominee within four days. Powell remains favourite but Brainard still has an outside chance although some think she is too dovish to lead the Fed through a period of high inflation. Bullard has suggested Fed could increase the rate of tapering, although Daly has said she prefers to stick to the current pace. We have a host of Fed officials speaking through this afternoon.

Finally, early this Friday morning the UK could be treated to a partial lunar eclipse lasting nearly 3 ½ hours, although we’ll only have it for a few minutes at around 6.00am before the moon slips below the horizon. I am led to believe the moon should turn rather red as it moves into the earths shadow.

- 08.00 EU financial stability review

- 10.00 EU construction output

- 13.30 US housing starts

- 13.30 CAD CPI

- 14.00 BoEs Mann speaks

- 14.10 Feds Williams speaks

- 16.00 Feds Bowman speaks

- 17.40 Feds Waller, Daly speak

- 21.05 Feds Evans, Bostic speak

- 02.00 RBNZ inflation expectations

- 05.35 RBAs Ellis speaks

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