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Is Sterling temporarily over-inflated?

Is Sterling temporarily over-inflated?

Sterling rose during Monday’s trading as an optimistic tone was heard from Bank of England rate setter Martin Weale. He commented that he would be patient when it comes to deciding for more stimulus post-Brexit as he believes that it is still too early to assess and understand the effect of the vote.

Today will reveal the UK’s inflation data for the month of June, the first real post-Brexit economic data. The Consumer Price Index (CPI) is expected to be flat for the month at 0.2%, whilst edging up to 0.4% for the yearly figure to June. Core CPI is also expected to show a slight gain, up by 0.1% to 1.3% in June (year-on-year).

The figure will be of importance to the Bank of England as they look to release their inflation report and rate decision on August 4th. However, Monetary Policy Committee (MPC) member Gertjan Vlieghe has recently commented that the Bank may need to ignore any temporary rise in inflation as a result of the weaker Pound.

The Dollar struggled for direction through the European trading session yesterday. In absence of any major market-moving economic releases, the Dollar has been solely driven by the buoyant risk sentiment prevalent in the market. There will be another quiet data day for the US today, so expect market sentiment to drive the Greenback again.

The Euro also remained relatively unchanged as volatility was low through the day yesterday. The single currency witnessed sideways trading versus Sterling as a data-poor day resulted in little movement in the markets. GBPEUR opened at 1.1939 this morning, with EURUSD opening relatively unchanged at 1.1071.

The latest Bundesbank report shows expectations for the German economy will pick-up this quarter after a slowdown in the second quarter. The impact of the Brexit will likely only be short term, which provides some good news for the Euro over the medium-term.

Data to Watch: 9.30am GBP CPI YoY, PPI Input MoM. 10am German ZEW Economic Sentiment. 1.30pm USD Building Permits. 3.05pm MPC Member Broadbent Speaks.

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