Quantitative Easing might actually work!
The GBP began to recover its losses against the USD during the course of trading yesterday to close the day over 1.5350 having opened around 1.5200. However, this is the exact opposite of its movements against the EUR where it was all one direction, losing almost two cents yesterday alone.
There were some significant information sets released yesterday that made a considerable impact on both of our principal trading pairs. Early in the day, the UK released their Net Lending, Mortgage Approval and Money Supply figures which were largely positive. However, just half an hour later, the Eurozone Producer Price Index (PPI) and Consumer Price Index (CPI) figures were announced. This was an interesting mix. The CPI information showed that there was actually an increase in the Eurozone inflation both on a monthly and yearly comparison basis. This is obviously somewhat of a coup for a central bank that has been struggling and fighting to do just this.
On this basis, the EUR has surged and reclaimed some significant ground against the GBP. However, looking at the PPI figure, this being the signal of the prospect of future inflation for consumers is not likely – given that the PPI figures signalled a contraction. Producers normally do pass on price pressure/alleviations to consumers, so there may be a question about whether or not this is a flash in the pan or the CPI inflation could possibly gather momentum. There has been a sentiment of praise for the effect of the Quantitative Easing programme that the European Central Bank has instituted and is credited with erasing the depreciation that has plagued the bloc recently.
There has been still more talk of the Greek government’s inability to settle their upcoming payment to their creditors. The quotes attributed to policymakers in the Greek government have not been subtle, and rather explicit in maintaining that there is no money and without some kind of deal, no payments will be made. The inflation forecast for the Eurozone could be raised in the near term, but this is probably going to be backed by Draghi insisting that the QE programme needs to remain in full effect to properly allow its impacts to be felt.
Today on the wires we have the ECB interest rate decision, unemployment rate, retail sales and their policy statement and press conference – so a critical day for the direction of the currency. The US figures due today contain the Services Purchasing Managers Index, Non-manufacturing Purchasing Managers Index and their trade balance. So it could prove to be yet another volatile day today.