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Will inflation signal rate cutting?

Will inflation signal rate cutting?

GBP

Boris Johnson stated his total confidence the UK would secure a comprehensive EU trade deal by the end of the year and also reiterated that Scotland would not be granted a second Independence referendum. Pound sentiment remained fragile initially given the speculation of a Bank of England move to cut interest rates but the anticipated January interest rate was forecast to be smaller than at first thought. A modest recovery of confidence in the global economy also provided an element of Pound support and there was a correction from recent losses. Sterling drifted back above the 1.3000 mark against the Dollar and nearly back above 1.1700 on the Euro. 

UK inflation data will be the focus today, and a mediocre print would ease the way for the Bank of England to cut interest rates. The Pound is slightly up at market open and although markets will position before the data release, the 9.30 inflation data will likely generate a lot of activity.

 

USD

Ahead of signing the trade deal with China today, the US removed its label as a currency manipulator country. The market is seeing dollar strength as tensions with Iran and China continue to thaw. 

The US NFIB small-business confidence index declined to 102.7 for December from 104.7 previously and well below consensus forecasts. There was an increase in underlying uncertainty, although companies did expect increased sales over the year. Consumer prices increased 0.2% for December, below consensus forecasts of 0.3%, although the year-on-year rate increased to 2.3% from 2.1% and in line with expectations. Similarly, the core increase of 0.1% was slightly below forecasts, but the annual rate of 2.3% met expectations. Overall market reaction was limited with strong expectations that the Federal Reserve (Fed) would not make any changes to interest rates in the short term. 

Kansas City Fed President George stated that it is appropriate to keep interest rates on hold in the short term whilst she also forecasted strong consumer spending. Confidence in the global economy remained slightly stronger which encouraged diversification away from the US currency. 

 

 

EUR

German yields edged slightly lower ahead of the New York open yesterday, after a firm start, the Euro gradually drifted lower against its US counterpart with lows close to 1.1100 after failing to break above 1.1150. There were expectations of increased reserve diversification into the Euro over the medium term which limited Euro selling.

With the Dollar edging lower the Euro was able to regain some ground to the 1.1135 area as yield spreads moved in the single currencies favour with little change on Wednesday. As of writing, the common currency currently trades at 1.1115 mark against the Dollar.

 

 

Data to watch

08:40 GBP – MPC Member Saunders Speaks

09:30 GBP – CPI

09:30 GBP – PPI Input 

13:30 USD – Core PPI

13:30 USD – PPI

15:30 USD – Crude Oil Inventories 

16:00 USD – FOMC Member Harker Speaks 

17:00 USD – FOMC Member Kaplan Speaks 

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