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UK braced for inflationary shock

UK braced for inflationary shock

The Pound gained against the Dollar as market participants continued to digest recent tepid results from across the pond. GBP is trading with apparent support around the 1.2130 against the Greenback, as fears of a ‘hard Brexit’ seem to have lessened. The Pound held just above 1.1100 against the Euro as Sterling sentiment remained fragile, but showed some signs of stabilisation.

The latest UK inflation data is to be closely followed today as there are fears of a sharp rise in inflation caused by Sterling’s weakness. Prior surveys expect headline Consumer Prices to have risen at an annualized 0.8%, while Core CPI is expected to have increased by 1.4% over the last twelve months. The most recent bout of currency vulnerability is unlikely to show up in this data release and a lower than expected release would dampen immediate fears slightly.

The Euro was restricted to narrow ranges versus Sterling during yesterday’s European trading session. Eurozone Core Annual Consumer Price Index figures printed at 0.8%, meeting expectations and maintaining last month’s figure. The single currency ended the day where it began at around the 1.1098 levels.

European Central Bank President Mario Draghi is dependent on a well functioning banking sector; the current Euro banking malaise is counteracting Sterling’s Brexit fears, preventing the Pound from dropping further.

US Industrial Production rose to a seasonally adjusted 0.1% in September, matching expectations, after dropping by 0.5% in August. The Dollar Index, which tracks the Greenback against six major rivals, slipped 0.2 percent to 97.711, after rising as high as 98.169 in the previous session, its highest level since March this year.

GBPUSD is now recovering once again towards 1.2270 levels as markets are expecting a better UK CPI report, which will be published later this evening session at 8:30pm GMT. Against this backdrop, EURUSD recovered from a low of 1.0963 and climbed to a daily high of 1.1007 before losing momentum. The pair was last trading at 1.1000, up 0.25% yesterday.

Data to Watch: 8:30am UK Producer Price Index – Core Output (MoM) (Sep), 8:30am UK Consumer Price Index (YoY) (Sep), 8:30am UK Core Consumer Price Index (YoY) (Sep), 12:30pm US Consumer Price Index (YoY) (Sep); Ex Food & Energy (YoY) (Sep), 2:00pm US NAHB Housing Market Index (Oct).

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