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Inflation data bonanza to dig Sterling out of its hole?

Inflation data bonanza to dig Sterling out of its hole?

Sterling came under renewed pressure yesterday and is on track to post its eighth day of overall losses against all major pairs. GBPUSD broke below the 1.2900 mark as it continues to approach the 31-year lows seen in early July. Sterling also fell to fresh three-year lows against the Euro yesterday after speculation that the Brexit process would be delayed beyond the New Year. Prolonged uncertainty surrounding the economic outlook and fears that inward investment would be discouraged combined with yesterday’s low liquidity to exacerbate Sterling’s slump.

The Pound’s weakness was also exaggerated by Yen strength overnight. This was caused by an announcement that the Bank of Japan (BoJ) will present a comprehensive policy review at its September meeting, with specific focus on its inflation target as well as the efficiency of BoJ measures such as asset purchases and negative interest rates. This caused GBPJPY to fall below the psychological 130.00 barrier ahead of the European open this morning.

Today marks the first day of a string of economic data from the UK. Core inflation data is due for release at 9:30am and will give a good insight into how the Bank of England may act in the near future. If the data shows high inflation already, the chance of the Bank of England adding further easing decreases. This may be the catalyst required for Sterling to recover from its poor performance so far in August.

The sole data release from the States yesterday was the Empire State Manufacturing Index. There was little impact on the Dollar after it printed poorly at -4.2, down from the 0.6 seen last month. EURUSD broke above 1.1200 ahead of today’s busy economic calendar. Core CPI data, building permits and industrial production are the figures of note from across the pond. These figures will give insight into whether the on/off/on/off Fed rate hike is still on in 2016.

European trading levels should return to normal today after volumes fell yesterday due to several European bank holidays. Despite the reduced amount of trade, GBPEUR reached lows of 1.1468 and the Euro made gains against the Dollar. Today German ZEW Economic Sentiment will be released. A figure above 0.0 indicates optimism, with general market consensus expecting an increase from -6.8 to 2.1. It is likely that the Euro will be directed by economic releases from elsewhere.

Data to Watch: 9:30am UK Core CPI Inflation YoY, PPI Input MoM. 10:00am EUR German ZEW Economic Sentiment. 1:30pm US Building Permits, CPI MoM, Core CPI MoM. 2:15pm US Industrial Production MoM.

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