top of page
  • richard evans

US and UK inflation readings catch market on the wrong foot

Good morning, and a Happy Valentine’s Day to you all. 

 

Yesterday I mentioned that forecasts saw US inflation lower and UK inflation higher, and I surmised therefore that the risk for GBPUSD must surely be to the upside.   It couldn’t have been further from the reality.  US inflation came out higher than expected (3.1% vs 2.9% and core 3.9% vs 3.7% expected) which sent USD marching higher.  The S&P 500 was down nearly 1.5% by the close, back below 5,000.  The Adobe digital price index that I mentioned last week turned out to be an accurate indicator once again.  The higher inflation numbers yesterday combined with the strong US employment numbers must surely make even the most dovish of officials rethink their position.  Looking forward  to the updated ‘dot plot’ out in March.

 

This morning UK inflation has come in below expectations, sending GBP lower.  GBPUSD was up at 1.2680 before the US release, pushing below 1.2600 in the afternoon before ticking back above 1.2600 overnight.  It was 1.2610 before the UK release.  Now 1.2550 as I type.  GBPEUR had traded up to 1.1765 overnight but slipped back to 1.1735 as those UK numbers were revealed.  EURUSD fell yesterday as well, trading from 1.0795 to 1.0705, pretty much where we trade now. 

 

So it looks like the Fed were right in saying it was too early to be talking about rate cuts and that three rate cuts this year is likely, well below recent market pricing.  The UK numbers are promising but with headline at 4% and core CPI still up at 5.1% it is too soon to be thinking about rate cuts.  By contrast it is possible EU GDP numbers this morning point towards the potential for earlier and faster paced ECB rate cuts

 

USDJPY took advantage of the stronger US data, taking the opportunity to break up through the 150.00 area and onto a high of 150.85 before settling back in the 150.50 area.  This move, together with an overall rise in USDJPY of some 10 big figures this year now, should be enough to see tougher talk form Japan officials, but so far we’ve really only been treated to more of the ‘we are closely watching currency levels’.  However, any intervention other than verbal still seems to be some way off, but they have surprised before.  The previous high was in Nov last year when it reached high 151s, the same area as the high from Oct 2022.  We have to go back to mid-1990 to see higher levels than that.  Surely its time to look at the downside.  But how many times have I said that?

 

The weather here is pretty miserable, a bit cold and drizzly.  But spare a thought for our friends just over the pond in eastern US, where a powerful storm has brought the most snow they have seen in two years, some areas are reported to have had 15 inches of snow in one day.   Mind you, spare a further thought for those poor people in the UAE, who have been hit with hefty hailstorms which caused damage to homes and vehicles.  Didn’t expect to see that!

 

The US have finally agreed a US$95bn package of aid for Ukraine, Israel and Taiwan, the bulk of which I would imagine would go to Ukraine, where Russian forces seem to be making worrying inroads into areas previously won back by Russia.  The Ukraine counter-offensive that was widely touted around June of last year didn’t appear to have the impact they were hoping for.  Meanwhile in the Middle East, negotiators have so far failed to find any grounds for a ceasefire acceptable to both sides.   

 

Champions League football produced wins for Man City and Real Madrid yesterday but Mark was more interested in the Championship where his teams, Leeds won 4-0 to put them into the automatic promotion places after Southampton lost Bit of a quandary for him down on IoW with plenty of Southampton fans, but he’ll be in a good mood today if anyone needs anything doing, it’s a good time to ask.

 

EU GDP today as I mentioned, we also have several central bank officials speaking and then early tomorrow morning we’ll get the latest UK GDP numbers.  Will we get a pleasant surprise from those numbers to follow the softer inflation readings? 

 

 

-  08.30 ECBs de Guindos speaks

-  10.00 EU GDP, industrial production

-  14.00 ECBs Cipollone speaks

-  14.30 Feds Goolsbee speaks

-  15.00 BoEs Bailey speaks

-  17.00 ECBs Nagel speaks

-  21.00 Feds Barr speaks

-  23.50 Japan GDP

-  00.00 AUD inflation expectations

-  00.30 AUS unemployment

-  07.00 UK GDP, industrial production

 

 

4 views0 comments

Recent Posts

See All

Forget currencies for now, focus on the sport

Good morning Well after a bit of action on Wednesday, Thursday was something of a damp squib in the currency world.  GBPUSD had a brief dip to 1.2645 but had got back up to 1.2675 by the close, likewi

Comments


bottom of page