United States Dollar:
Sterling was given its marching orders yesterday as annualised UK CPI numbers fell to their lowest level for 5 years. GBP/USD started the day at 1.6050, having traded down overnight as the USD regained some support, but shortly after opening, the Office for National Statistics posted a host of UK inflation figures. The main reading showed y/y UK Consumer price index fell to 1.2%, 0.2% below forecasts and 0.3% below the previous month. The core y/y CPI figure (adjusted to exclude seasonally volatile products such as food and energy) printed 1.5%, 0.3% below expectations and 0.4% down from the previous month. With the Bank of England highlighting an inflation rate closer to 2% as one of the main fundamentals for an interest rate hike, the low readings threw cold water on any expectations of a rate hike in the Q1 and possibly Q2 of 2015. As such, the pound snapped below 1.60 and continued falling throughout the day before finding resistance at the key technical level of 1.59. Overnight however, the pair has breached this level, falling to a low of 1.5876, and it will be up to this morning's UK Unemployment rate and average earnings (another BOE fundamental) to try and provide some respite. This afternoon the US also releases its retail sales figures with forecasts showing a fall to -0.1% from the previous month’s figure of 0.6%. We open today with GBP/USD at 1.5895
Euro:
GBP/EUR also fell heavily following the lower than expected UK CPI figures. Starting the day around the 1.2630 level, European trading opened with a host of inflation figures from France, Italy and Spain, but these were widely ignored as investors focused their attention on the UK CPI figures. As mentioned above, UK inflation was forecast to show a fall from last month, however the surprise print of 1.2% vs exp 1.4% fuelled a sterling sell off to 1.2580. There was a brief reversal a short while later, as eurozone industrial production and ZEW surveys of Economic Sentiment in Europe and Germany posted poor readings. European Industrial production printed y/y -1.9%, vs exp -0.9% and m/m -1.8%, vs exp -1.6%. The ZEW surveys of Economic sentiment posted -3.9% vs exp 1.0 for Europe and 4.1 vs exp 7.1 for Germany. Along with these surveys the ZEW president, Clemens Fuest, stated “Negative Q3 growth in Germany cannot be ruled out”. These all helped sterling claw back some ground, recovering to 1.2610, but through the afternoon GBP gapped lower, to trade around 1.2575, as the effects of the CPI figures on UK interest rate hike expectations sank in. This morning's German CPI numbers coming in bang on forecasts at 0.8%, and this sees GBP/EUR open at 1.2560. We now look ahead to UK employment and average earnings figures to provide today's direction. EUR/USD lost close to 0.75 cents during yesterday and overnight trading as Germany, Europe's largest economy, downgraded its growth forecasts for 2014 and 2015. The German Economic Ministry expects 2014 growth to be at 1.2% vs previous estimate of 1.8% while 2015 growth is expected to be 1.3% vs previous estimate of 2%. The news, along with the poor eurozone industrial production and below par ZEW survey readings, saw EUR/USD move from an opening price of 1.27 to 1.2625 by the close of the European sessions. US and overnight trading helped the pair recover slightly, and this morning we open at 1.2660. The key news on today's docket mainly comes from the US with the release of their Retail Sales figures for September along with the Producer Price Index and the Fed's Beige Book. We open today with EUR/USD at 1.2650
Aussie and Kiwi Dollars:
Demand for the Aussie and Kiwi dollars waned through yesterday as continuing growth fears in Europe and the US saw higher yielding assets dumped. AUD/USD fell to 0.8705 while NZD/USD dropped from about 0.79 to 0.7825. However, CPI numbers from the UK did send sterling lower against both commodity link currencies and, despite y/y CPI and PPI numbers from China coming in below expectations, the AUD and NZD gained more ground overnight. With Asian trading closed it will be up to UK employment and wage numbers to try and help sterling recover. We open today with GBP/AUD at 1.8215 and GBP/NZD at 2.0276.
Data releases for the next 24 hours:
AUD: Consumer Inflation Expectation (Sep), RBA Foreign Exchange Transaction (Sep)
EUR: ECB President Draghi's Frankfurt speech
GBP: Claimant Count Change (Sep), Average Earning (3Mo/Yr) (Aug), Claimant Count Rate (Sep), ILO Unemployment Rate (3M) (Aug)
NZD: Business NZ PMI (Sep)
USD: MBA Mortgage Applications (Oct 10), NY Empire State Manufacturing Index (Sep), Producer Price Index (YoY & MoM) (Sep), Retail Sales (MoM) (Sep), Business Inventories (Aug), Fed Beige Book
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