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  • richard evans

US shoots lower on softer US CPI, lower UK inflation take GBP off its highs

Good morning

Softer US inflation numbers yesterday sent USD lower as the market started to discount the chance of rate rises. The quarterly and the annual rates were 0.1% lower than expected, including the core readings. I’d said just yesterday that USD might not weaken in the event of possible lower US rates. Got that wrong, can’t be right all the time I suppose! GBPUSD rallied from 1.2300 to hit a high of 1.2505, EURUSD followed suit moving up from 1.0700 to 1.0885 and even Yen managed to makes gains against the Dollar, USDJPY trading down from 151.75 to 150.15.

In the crosses, GBP came out on top, with GBPEUR up to 1.1505 at one point, while GBPJPY surged over 200 points higher from 186.20 to 188.25, EURJPY managed a 150 point rise to 163.90, the highest level since the pre-2008 GFC highs when it was up near 170.00. The high before then was 164.50 in 1998, just before the Russian banking crisis and the collapse of LTCM. The high before that was in 1992, just before the UK’s ERM debacle. I’m absolutely not suggesting we are primed for another collapse in EURJPY and yen crosses, just notable highs over the past 30 years or so.

Since 1992 GBPJPY has traded as high as the 250 area a couple of times, again pre-ERM and pre-GFC in 2008. Incredibly GBPJPY dropped from above 251 in July 2007 to around 119.00 by Jan 2009. We were working on the desk of a rather large financial institution in those days, you can imagine how crazy those days were.

UK inflation this morning has come out softer than expected, with the headline falling from 6.7% to 4.6%, the lowest level for two years, even the core reading slipped from 6.1% last time around to 5.7%, 0.1% lower than expected. GBP is off its highs, GBPUSD now 1.2470 and GBPEUR 1.1465. GBPAUD hit 1.9250 overnight but has fallen back is currently around 100 points lower, AUD getting a bit of support from higher than expected wage prices and talk that China may ease trade barriers for Aussie beef exports.

JPM’s Dimon has warned we should not get carried away with the inflation news, warning that the Fed may still need to push rates higher should inflation start rearing its head again although there are those who feel the Fed have actually done more than necessary and will need to cut rates quickly. A good example of just how much uncertainty there is right now as to US rates. I have mentioned recently a few major banks looking for rate cuts next year, BoA have now changed their forecast, they no longer see another US rate rise.

US retail sales data due out today and if this happens to come out weaker than expected we could see further USD losses. Its already quite a low expectation though at -0.3% from 0.7% last month. Do have to remember that everything is relative. A slower US economy and lower US inflation could lead to a lower US dollar, but if other countries face a similar situation then USD could still remain in demand. Perhaps not quite the time to chase the short dollar trade.

Biden meets China President Xi in San Francisco today, they certainly won’t see eye to eye on many things but the fact that they are meeting is a step in the right direction. The sceptic in me thinks China are now struggling a bit and as such it’s a good time to be friendly, but regardless, we’d all prefer the two powers to be on talking terms.

I’m off to see Passenger this evening. For those not sure of Passenger, it’s the guy who sung ‘Let Her Go’ back in 2012, one of my kids liked it so we bought the album (yes, still bought albums back then). The album, All The Little Lights, probably wasn’t a major hit, I don’t know anyone else who bought it, but I liked it. Now some ten years later he’s doing a few 10th anniversary gigs. I’m heading to Union Chapel in Islington which holds only 900 people, I did well to get tickets. My only hope is he plays songs from that album rather than from any of his other albums as I don’t know them. He’s done a few collaborations with Ed Sheeran over the years, indeed there is a new one on YouTube with both Passenger and Sheeran singing Let Her Go, worth a watch for sure. My wife is hoping Sheeran makes a surprise appearance this evening! That’s would be something.

In completely unrelated news, but something I thought I’d share, I only discovered yesterday that 5⁵ x 4⁴ x 3³ x 2² x 1ⁱ equals 86,400,000. 86,400,000 milliseconds is 86,400 seconds. Which happens to be exactly the number of seconds in one day. I’m not sure if this is coincidence or if there is some mathematical reason why this works, but for anyone who, like me, can be a bit intrigued by numbers, it’s a pretty interesting fact.

Cricket world cup semi-final today between India and New Zealand, tomorrow sees South Africa take on Australia. India are favourites for today and indeed for the tournament, while Australia are slight favourites to beat South Africa. As I type, India are going well at 70-0 after eight overs.

- 09.30 UK BoE monetary policy report

- 10.00 EU industrial production

- 13.30 US retail sales, PPI, NY empire state manufacturing index,

- 23.50 Japan trade balance

- 00.00 AUS consumer inflation expectation

- 00.30 AUS unemployment

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