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Sterling Plummets as UK Prices down despite BoE decisions

Sterling Plummets as UK Prices down despite BoE decisions

The headline news from yesterday came early as UK inflation data printed weaker than expected across the board. There was no change in CPI (year-on-year) figures at 0.6%, whilst monthly PPI input fell to 0.2%. Furthermore, import prices are 7% higher than in August 2015 due to the tumble in the Pound following the Brexit vote.

The poor data caused Sterling to fall against all major currencies, with Sterling losing over 150 pips versus the Dollar over the course of the day. The Pound bottomed out at a 12-day low of 1.3178, with an overall weakening of more than 1%. The losses didn’t stop there – GBPJPY fell below 135.00 for the first time this month, and the Euro gained over a cent against Sterling.

All eyes today will be on the UK employment data. The market is expecting no change in the unemployment rate at 4.9%, but general consensus is open to the chance of the Average Earnings Index (three months to the year) falling to 2.1%. A second day of poor data will mean all Sterling gains from last week will be completely reversed.

The wave of selling pressure weighing on the Pound prompted sellers to quickly reverse Monday’s GBP gains, pulling the European Cross (GBPEUR) to fresh lows near the 1.1720 the figure. The Euro gained a cent before the European close. This strengthening came despite the German ZEW Economic Sentiment remaining unchanged at 0.5, failing to meet expectations of a rise to 2.8. News surrounding unemployment in the Eurozone wasn’t great, either – Quarterly Employment Change remained at 0.4%

There is little data of interest from the Euro area today, so expect the single currency to be driven by events elsewhere. GBPEUR opened at 1.1770 this morning, recovering slightly from yesterday’s losses.

Although there was no tier one data from the States yesterday, the market was reacting to dovish comments from Fed Member Brainard on Monday evening. These were, however, shrugged off towards the end of the European trading session as the Pound continued to suffer. The Dollar recovered from last week’s disappointing performance to below 1.32 against the UK currency.

After today’s data from the UK, investors’ eyes will be on the open of US trading session and the release of monthly import prices data from across the pond. Poor figures are expected, which may spell the end of the Dollar strength seen early this week.

Data to Watch: 9:30am GBP Average Earnings Index 3m/y, UK Claimant Count Change, UK Unemployment Rate. 10:00am EUR Industrial Production MoM. 1:30pm USD Import Prices MoM.

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