Unexpected decline in UK inflation

Jeremy Thomson-Cook
Jeremy Thomson-Cook 20 October 2021

GBP UK CPI misses

USD – Risk on sees the dollar remain pressured

EUR – Inflation figures due later this morning in focus

 

Sterling

The pound rallied back to the recent trading highs against the EUR and USD yesterday as interest rate hikes in the UK continue to be priced in by the Bank of England. In addition, risk appetite remains positive with equities continuing to rise marking the fifth consecutive day of rising stocks in the US. The positive risk sentiment continues to lend a hand to the pound, keeping it within a narrow range of recent highs.

This morning we have already seen inflation figures from the UK come in slightly below expectations but still over 3%, just taking the edge off the surging interest rate markets.  This may cast some doubt for those MPC members who currently maintain a dovish stance. The release today showed that transport sector to be the main upward contributor with restaurants and hotels continuing to drag.

 

Euro

Euro pulls back off the recent three-week highs versus the US dollar yesterday, though there was a distinct absence of any financial news for the eurozone. We are expecting inflation figures later this morning, with the annual figure expected at 1.9%, just below the ECB’s 2% target rate.

 

US dollar

The dollar remains on the back foot as investors shun safe havens and pile into riskier currencies including the pound. Though the Fed is still on target to start tapering its asset programme as soon as next month and rate hikes expected to begin from next September.

There are no tier one economic data releases due today with only mortgage applications on the agenda, which is unlikely to move the market. Though after hours we do have Fed members speaking, as such markets will be looking for hints to any forward guidance.

 

Market rates

Today's Interbank Rates at 09:27 against sterling. Movement vs yesterday.

Euro 1.185
US dollar 1.378
Australian dollar 1.839
South African rand 19.98
Japanese yen 157.7

 

Have a great day.