EM Market Report US Fed Building

US inflation set to ease?

Thanim Islam
Thanim Islam 10 August 2022

GBP: Preparing for a blackout

EUR: Gas supplies halted to Central and Eastern Europe

USD: Inflation data to guide dollar direction

Sterling

Just when the UK economy and the pound didn’t need another thing to worry about, now comes the news that the government has drawn up plans for potential power cuts to homes and industries in January. The news comes following information that Norway will have to cut back on energy supplies due to lower rainfall.

Earlier in the day, BoE Deputy Governor Dave Ramsden commented that the Bank will have to continue to raise interest rates further, but also commented that as quickly as they have been rising, the Bank, at some point, will have to start cutting rates just as quickly.

BoE Huw Pill will be speaking later.

As mentioned yesterday, we look towards US inflation figures today to see how the data impacts equity markets, and thus how this will impact risk sensitive currencies like the pound.

Euro

The European gas story took a hit yesterday after news that Russia has halted gas supplies to Central and Eastern Europe, due to a dispute regarding payments on the pipeline. There hasn’t been any significant impact on the euro as of yet, but once again the news continues to raise fears of an energy crisis in Europe.

This morning we have already had German inflation figures for July coming in as expected at 8.5%, and later in the day we have inflation figures from Italy.

USD

Today's headline news is going to be inflation data at 1.30pm. As mentioned in previous days, headline inflation is expected to soften to 8.7%, taking into consideration the recent fall in energy prices, but core inflation is expected to rise to 6.1% in July from 5.9% in June. Should core inflation rise, it will support recent comments by the Fed that they are far from done in battling inflation.

We'll keep an eye on money markets after this data to see their assessment of the Fed interest rate path. Recently the peak in rate hikes was pushed back a month to March, so we look to see if markets are now expecting the period of higher interest rates to last longer.

A higher than expected inflation print will cement demand for the US dollar, and we would expect equity markets to drop, causing a decline in risk sensitive currencies.

Market rates

Today's Interbank Rates at 09:54am against sterling movement yesterday.

Euro

€1.183 -

US dollar

$1.209

Australian dollar

$1.734 -

South African rand

R20.00

Japanese yen

¥163.2 -

Have a great day.