Inflation is inflating
Bank of England Chief Economist Andy Haldane commented that there has a been a recent surge in business concerns about Brexit and uncertainty; and Sterling dipped briefly. UK inflation data reversed the move within the hour. Headline consumer inflation increased to a six-month high of 2.7%, beating forecasts of 2.5%. The core inflation rate also rose to 2.1% from 1.9% previously, with the Retail Price Index also moving higher. Sterling pushed through the 1.3200 mark against the Dollar, peaking at 1.1280 vs. the Euro, on speculation that the current monetary policy would need to be more aggressive.
Just before the New York opening bell, reports that Theresa May would reject the EU’s Northern Irish proposals put Sterling in reverse. The Pound was also wrong-footed by the outpouring of cautious rhetoric ahead of the Saltzburg Summit. The lack of immediate positive feedback from the Summit dampened Sterling sentiment and we open at 1.3155 against the Dollar and 1.1255 against the Euro. We can expect further volatility with the Retails Sales figures release this morning.
The Dollar was again unable to generate significant support from US-China trade fears amid concerns that the US economy would eventually be hurt, while immediate fears over global economic damage faded slightly.
There was also evidence that uncertainty surrounding the US mid-term congressional elections was starting to have an impact in terms of weakening the Dollar.
Later today in terms of data, we see the Philly Fed manufacturing index coupled with Initial Claims and Existing Home Sales.
German yields pushed the Euro up initially, but it was unable to hit the 1.1700 mark and retreated after the New York open in the afternoon. Nervousness around the China trade deal and Brexit mean that any support the Euro gained early versus Sterling and the Dollar faded by the afternoon. President Draghi’s speech was about monetary policy, but there was very little volatility.
Geopolitical risks from Italy were of the most interest, with Prime Minister Conte promising to keep the budget deficit below 2% and, in doing so, dismissing calls from the Five Star Movement for a larger budget deficit.
Very little data is released today, with Bundesbank President Weidmann’s speech being the most highly anticipated news.