Despite a doubling of the rate of inflation compared to last month, sterling has not been able to pull higher this morning. We know that a lot of the rise is simply a base effect from last year i.e. this year’s rise reflects last year’s falls more than any change in circumstances this year, and we’re fairly confident therefore that the Bank of England will not change their messaging on rate rises yet.
Once we see CPI rise above 2% that’s when the pressure will emerge.
Sterling should stay supported on the day and we now look forward to a strong retail sales number on Friday.
The single currency is close to its strongest level since January this morning against the USD and while nowhere near a multi month high against sterling, it continues to hold its own. Friday morning’s PMIs will be crucial in uncovering further euro strength.
Ahead of the Fed minutes this evening the dollar has crept up off the lows made yesterday. There is an outside bet that some members of the Fed are getting worried about being behind the curve on interest rate rises which would drive further USD strength this evening.
The dollar will also be being supported by heavy drawdowns in crypto assets that have collapsed further overnight. Turns out that bitcoin is not an inflation hedge, but then again, if you’re reading this then you’re smart enough to know that already.
Alongside the euro, keep an eye on the SEK and NOK on Friday as it will be interesting to see whether a rising tide lifts all boats and countries that depend on a strong Europe will also benefit. Norway has been winning this race of late courtesy of higher oil prices.
Today’s interbank rates at 08:56 against sterling. Movement vs yesterday.