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13 Feb 2017
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UK Inflation and Yellen will be one to watch today

United States Dollar:

We started the week with a very light calendar and USD moves were still being spurred by Trumps expectation to make tax cuts and bring in his ‘big tax reform’. Late last night things have taken a turn for the worse on the news that President Donald Trump's national security adviser Michael Flynn quit. Flynn resigned late on Monday under scrutiny over whether he discussed the possibility of lifting U.S. sanctions on Russia before Trump took office. The news weighed on the dollar because its a hard situation to understand, and also to understand what kind of broader fallout it will have. Investors will now turn their attentions to see whether Federal Reserve Chair Janet Yellen offers clues to the likely pace interest rate increases in her congressional testimony. Interest rate futures showed investors pricing in only about a 1 in 5 chance the Fed will increase rates at its meeting next month, according to CME Groups FedWatch program. I think Yellen won’t go into too much detail and could take a cautious approach today so we may not see much movement in the currency, she might suggest some possibility of the Fed hiking rates in March, but I think that risk is very small. Cable currently moves at 1.2543.

The Great British Pound edged marginally higher through trade on Monday pushing through and holding onto gains above 1.25. Continued support following last week’s stronger than expected Manufacturing and Trade data saw investors ride the cable rally while the Sterling/Euro cross touched two week highs. Attention now shifts to todays headline that is CPI. Expectations are 1.9% but this could quite easily overshoot and hit the 2% goal set out by the BOE. This will be one to watch today and would quite easily shift Sterling’s value either way depending on the outcome.

We expect a range today in the GBP/USD 1.2450 to 1.2610

Euro:

For the Eurozone yesterday we had the latest set of Economic forecasts. The European commission said “uncertainty about U.S. policies, Brexit and elections in Germany and France would take their toll on the euro zone economy this year”. It forecast euro zone economic growth to lose some speed this year before rebounding in 2018. It saw a sharp growth drop ahead in non-euro zone and EU-leaver Britain. The 19 countries that remained in the EU would slow to 1.6% this year from 1.7% the previous year, but they did go on to say the bloc would gain speed in 2018 and GDP is expected to increase 1.8%. The leading income generator for the EU, Germany, is expected to see its GDP growth slow to 1.6 percent this year from 1.9 percent in 2016. Growth will accelerate from 1.2 percent to 1.4 percent in France, and remain stable at 0.9 percent in Italy. Although a slowdown has been witnessed from 2016 forecasts have been revised upwards for this year and 2018. This morning we have already seen the release for German GPD and CPI. GDP missed its forecast of 0.5% coming in at 0.4%, although this was an improvement on the 0.2% seen last quarter. CPI was unchanged at -0.6%. GBP/EUR which has so far been on the up since the start of the week currently moves at 1.1816.

We expect a range today in the GBP/EUR rate of 1.1720 to 1.1890

Aussie and Kiwi Dollars:

Overnight saw the release of the NAB business confidence number. The data showed business conditions had jumped to their highest in nearly a decade. The data is among the latest in a string of surveys that show the A$1.6 trillion economy is humming along, cementing views the central bank will stand pat on interest rates after easing twice last year. National Australia Banks monthly survey of more than 400 firms showed its index of business conditions jumped 6 points to +16 in January. That took it back to the highs seen in mid-2007 and well above the long run average of +5. GBP/AUD dropped from its 4 day high to 1.6323 on the back of the release, at the time of writing we are currently at 1.6340.

The Kiwi has continued on its steady decline following last week’s decision to keep rates on hold. GBP/NZD went from closing last week at just above 1.7300 to 1.7464 where we currently sit. The dockets light again today and it’s not until Thursday when we have domestic data for the NZD. We could see moves being dictated by any USD movements in particular Yellens speech later today.

We expect a range today in the GBP/AUD rate of 1.6230 to 1.6440p>

We expect a range today in the GBP/NZD rate of 1.7340 to 1.7560

Data Releases

AUD: New Motor Vehicle Sales

EUR: Flash GDP, German ZEW Economic Sentiment, Industrial Production

GBP: CPI y/y

NZD: No data

USD: PPI m/m, FED’s Yellen speaks, FED monetary policy report

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