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17 Feb 2015
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UK inflation drops to new lows but GBP remains steady

United States Dollar: Data yesterday showed that UK inflation fell from 0.5% to an all-time low of 0.3% in January, but in line with most analysts’ forecasts. Low inflation could well turn into deflation as we head into the summer, as the recent collapse in oil prices continues to force down the headline CPI reading. A temporary drop into deflation has been forecast by the Bank of England too. MPC members will be keen to avoid a period of sustained deflation given the damage falling prices can do to an economy over a longer period of time. The central bank mentioned in the recent Inflation Report that extra QE and rate cuts were still tools at their disposal should a short-term beneficial fall in prices turn into a potentially dangerous longer term fall. The figure was in line with expectations and so the pound didn’t really react. In fact, come the late morning session GBP/USD pushed up to a high of 1.5395. It was then met with selling interest as the London fix approached and dropped to a low of 1.5315, but has recovered slightly to open this morning at 1.5350. The focus for traders today will be on UK earnings and employment data as well as the BoE MPC meeting minutes. It’s all due out at 9:30 am so stay tuned for some volatility in GBP/USD. Later in the day, attention will turn to producer price data from the States and even later this evening the FOMC meeting minutes fall due. More specifically, investors will be keen to understand the hawkish sentiment amongst Fed members and whether there was much scope to drop the word “patient” when referring to hiking interest rates at their last meeting.

We expect a range today in the GBP/USD rate of 1.5210 to 1.5490

Euro: EUR/USD steadily appreciated yesterday morning as the Greece/EU negotiations continued to fill the headlines. There were signs on Tuesday that the new Greek government were starting to feel the weight of pressure from the Eurozone to accept the terms of a loan extension. Meanwhile yesterday the Swiss National Bank’s chairman Thomas Jordan hinted that the bank may intervene again shortly by saying “our currency is still trading at a significantly overvalued level”. EUR/CHF was bid higher on the comments which in turn supported EUR/USD. EUR/USD rallied from 1.1345 to a high 1.1449. It has fallen off a bit in Asia to open in London at 1.1390. GBP/EUR is slightly lower as a result this morning and trades at 1.3480.

We expect a range today in the GBP/EUR rate of 1.3410 to 1.3535

Aussie and Kiwi Dollars: Chinese New Year has begun and so overnight activity was fairly muted. AUD/USD opens at similar levels to yesterday at .7815 and NZD/USD trades at .7535. The Bank of Japan announced that it would be leaving monetary policy unchanged and unsurprisingly it didn’t have too much of an effect on either currency. As a result both GBP/AUD and GBP/NZD are similarly steady this morning.

We expect a range today in the GBP/AUD rate of 1.9560 to 1.9750

We expect a range today in the GBP/NZD rate of 2.0250 to 2.0490

Data Releases

AUD: No data

EUR: No data

GBP: Average Earnings Index 3m/y, Claimant Count Change, MPC Official Bank Rate Votes, Unemployment Rate

NZD: PPI Input q/q, PPI Output q/q

USD: Building Permits, PPI m/m, Housing Starts, Capacity Utilization Rate, Industrial Production m/m, FOMC Meeting Minutes, TIC Long-Term Purchases

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