12 Feb 2015

Pound rises on BoE Inflation Report

United States Dollar: The pound rose yesterday on the back of the release of the latest Inflation Report from the Bank of England. The report stated that UK inflation could briefly dip into negative territory over the next few months before turning positive later in the year. The report stated however that MPC members were writing this off this drop in prices being temporary and driven by the recent dramatic fall in oil and commodity prices. It appears policy makers are looking though the overall reading to focus on the core reading which strips out food and fuel costs. This currently reads 1.3% and given a recent uptick in wage growth, solid GDP data, falling unemployment and a narrowing of the so called “slack” in the economy to an estimated 0.5% the report was seen as an overall net positive. GBP/USD pushed up from 1.5220 to 1.5340 immediately after the release and pushed higher in the afternoon getting further support from a poor US Retail Sales release. The core (-0.9%) and the overall (-0.8%) reading printed worse than expected and combined with under-par unemployment data from America cable has traded above 1.54 during the Asian session. It currently sits a little lower at 1.5380.

We expect a range today in the GBP/USD rate of 1.5340 to 1.55

Euro: German ZEW (an investor confidence index) printed in line with expectations on Tuesday and showed that confidence increased for a fourth month in a row in November – it rose to 54.6 from 52.8 in October. Euro zone ZEW Sentiment printed below market expectations at 60.2 vs. 63.1. Meanwhile yesterday, the OECD lowered its forecasts for global GDP and called on the ECB to begin quantitative easing in order to steer the economy away from deflation. This pressured the single currency lower yesterday morning and EUR/USD fell to 1.3490. It has recovered overnight following Bernanke’s dovish comments, trading to a high of 1.3572 in Asia. EUR/USD has settled back to open this morning at 1.3530 ahead of FOMC meeting minutes and important US data releases this afternoon. It has also lost some ground this morning after German PPI printed softer than expected at -0.2%. After dropping below 1.19 overnight GBP/EUR has recovered to trade at 1.1925 currently.

We expect a range today in the GBP/EUR rate of 1.3430 to 1.3560

Aussie and Kiwi Dollars: AUD/USD pushed to a high of .9445 overnight on the back of Bernanke’s words but also in response to the PBOC’s commitment to liberalise its exchange rate policy. It has started to fall in early Europe however as investors choose to square their books ahead of some important risk events today including US CPI and the FOMC meeting minutes. It opens in London at .9385. NZD/USD has gone the same way, investors shrugging off the better than expected Q3 PPI data released overnight. It trades at .8325 this morning. Both GBP/AUD and GBP/NZD have made steady gains as a result and sit at 1.7185 and 1.9375.

We expect a range today in the GBP/AUD rate of 1.9820 – 2

We expect a range today in the GBP/NZD rate of 2.0660 – 2.0850

Data Releases

AUD: No data

EUR: Flash GDP q/q

GBP: No data

NZD: No data

USD: Prelim UoM Consumer Sentiment

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