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Inflation on the horizon

Inflation on the horizon

The Pound traded within a tight range yesterday with slightly more than 0.50% between the high and the low against both the US Dollar and the Euro. Yesterday’s UK CPI inflation data showed an increase to 1.2% for November from 0.9% the previous month. This was just above what the market was expecting, causing the Pound to remain firm against both the US Dollar and the Euro. This proved to be the strongest reading since October 2014.

The expectations will be high for rising prices over the next few months given the impact of Sterling weakness. There was, however, a weaker than expected reading for wholesale prices which could ease inflationary pressure. This data should allow the Bank of England to resist the pressure to tighten policy in the short term.

December continues to be an exciting month for the markets as this evening the Fed rate hike decision will be announced. The Dollar was down against the Pound and the Euro, but up against the Yen on Tuesday. The markets have positioned themselves in anticipation of an increase in interest rates. The Dollar is steady, ready for the final day of the Federal Open Market Committee (FOMC) meeting, with the Dollar Index up 0.9 %.

Inspectors from the U.S. and other countries are investigating a decades-long cover-up of manufacturing problems at a key supplier to the nuclear power industry. Nuclear activity is a significant part of US power production, providing half a million US jobs and contributing $103Bn to gross output.

A U.S. judge on Tuesday directed federal prosecutors to show the search warrant application used to enable the FBI to access emails related to Hillary Clinton’s private server that was discovered during the presidential election race. If President-elect Trump is found to have “played-dirty” to win the election, there may well be many difficulties ahead of his inauguration on 20th January 2017. The Dollar reacted adversely to President-elect Trump’s planned aggressive tax cuts as he has to follow a plan that doesn’t impact the deficit. Some people fear that he will not deliver, others say the plan will continue to boost the economy, but for how long?

Yesterday, the European markets were full of festive spirit. The German ZEW report showed positive sentiment for economic conditions within the union’s largest member state. German bonds also outperformed US Treasuries and Equities.

The Euro made some gains during the European session against the US Dollar, helped by a rally in European stocks. Yesterday morning, the Euro weakened against the Pound following the UK inflation data. However, the single currency was slightly firmer against the Pound yesterday afternoon having hit fierce resistance in the push up to 1.2000.

Analysts are warning that there is still large economic risk being caused by the Italian banking sector, whilst the political risks from the upcoming elections in Europe seem to have dissipated for the time being.

Data to Watch: 10:00 EUR Industrial Production (YoY) and (MoM)(Oct); 12:15 GBP BOE’s Governor Carney Speech; 13:30 USD Retail Sales ex Autos (MoM)(Nov); 13:30 Retail Sales (MoM)(Nov) and Retail Sales Control Group (Nov); 14:15 USD Capacity Utilization (Nov) and Industrial Production (MoM)(Nov) – MAIN: 19:00 USD FOMC Economic Projections, Fed’s Monetary Policy Statement, Fed Interest Rate Decision and FOMC Press Conference.

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