UK inflation data causes GBP problems

The UK economy was put under further pressure yesterday as the inflation figures (CPI) for the month of September fell to 1.2% from 1.5% the previous month. The inflation rate is at its lowest since September 2009 when it was 1.1%, and we now run the risk of possible deflation problems for the UK in the near future. The cause of this drop was fuelled by lower energy/food prices and cheaper transport costs, said the Office for National Statistics (ONS). As soon as this information was released, Sterling lost significant (close to 1%) value against the dollar and it dropped off to 1.5925IB which continues the recent trend of Sterling trading on economic fundamentals and market sentiment. As for the Producer Price Index output figures, nothing has changed for the month-on-month (MoM) figure reading at -0.1% and the year-on-year (YoY) which didn't budge from last month’s -0.4%. Today brings a busier day with an array of fundamentals being released in the form of ILO Unemployment, Claimant Count Rate/Change and the Average Earning figures.

More bad news for the European economy as Germany’s Economic Sentiment had a drop to -3.6% from a previous 1.0%; this means the majority of institutional investors are taking a pessimistic approach for further investment in the short-term. Furthermore, industrial production declined to -1.8% (MoM) and -1.9 % ( YoY). Ultimately, this is an assessment of the volume of production in factories and manufacturing industries for the whole 27 nation economy. Considering it was bad news for the UK and Europe, this did not reflect in big moves for the GBP/EUR as it was a range trading day closing the London session at 1.2580 IB.

There was a lack of tier one data to report from the US yesterday. However, all eyes will be closely watching the Producer Price Index and Retail Sales figures which are out at lunchtime today (GMT). On a separate note, investors seem to be pulling out the dollar (one reason for the recent strength) while there is a slow down or delay for the US and UK to make a decision on an interest rate hike. Furthermore, while Europe is showing no stability in their economy and Germany after cutting is growth outlook yesterday, investors are flooding to gold as a safe-haven instead of the dollar and the very resilient euro. Inflation in China eased to a near five-year low in September, adding to further evidence of a slowdown in the world's second largest economy. The consumer price index (CPI) rose to a disappointing 1.6% and the slow inflation has been down from 2% since August.

EUR/USD opened this morning at 1.2642