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Will we ever leave Europe?

Will we ever leave Europe?

UK consumer inflation for October printed weaker than predicted with a decline to 0.9% despite rising transport costs. The output producer price index rose by 2.1%, faster than expected and the biggest increase since April 2012. Costs faced by producers (Input PPI) for raw materials and oil showed a record monthly jump in October – 4.6%. Although the weaker Pound has not yet hit the domestic consumer’s wallet (CPI), the jump in PPI figures show that price rises are on the horizon.

Bank of England Governor Mark Carney maintained his prediction that there would be considerable upward pressure on inflation during 2017, reiterating that there was a limit to the bank’s willingness to tolerate an overshoot of the 2.0% target rate. Hints that an interest rate hike is likely will benefit the Pound.

There were some reports yesterday that Brexit could be postponed for up to two years which triggered Sterling buying, although the main feature was very high uncertainty. After dropping a cent against Euro on opening yesterday, Sterling regained all losses steadily throughout the day, closing at 1.1578.

The Greenback regained its near-term bullish momentum after US monthly retail sales recorded a growth of 0.8% in October. The Empire State Manufacturing Index turned positive in November for the first time in four months, bolstering confidence in consumer spending and reinforcing expectations that the Federal Reserve would move to raise rates. GBPUSD dropped to 1.2380 on Tuesday after UK inflation figures.

Boston Fed President Rosengren maintained his call for an early rise in interest rates. His remarks make it evident that he voted in line with consensus at the November Federal Open Market Committee (FOMC) meeting because there was a clear commitment to raising rates in December.

German third quarter GDP data missed expectations, but the impact was offset by slightly stronger than expected Italian data and the fact that overall Eurozone GDP figures met expectations at 0.3%. There was an increase in the German ZEW index for the fourth successive month, although the overall impact was limited with attention focussed elsewhere. Euro sentiment remains fragile as opinion polls suggested that Italian voters would reject political reform in December’s referendum, potentially unseating their PM and instigating an early general election.

Data to watch: 9.30am UK ILO Unemployment Rate, Claimant Count rate & Change. Average Earnings incl & excl. Bonus. 2.15pm US Industrial Production, Capacity Utilization. 3pm NAHB Housing Market Index. EIA Crude Oil Stocks Change.

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