Sterling set for key 24 hours with MPC minutes and Scottish referendum due

United States Dollar:

Yesterday saw a lot of volatility in the pound, with sharp moves in GBP/USD during the London and New York sessions. Tuesday morning brought the release of the monthly CPI figure from the UK which fell, as expected from 1.6% to 1.5%. Although the fall in inflation was expected, cable fell below 1.62 to as low as 1.6172 immediately after the release. The release brings the lowest inflation reading in the UK since 2009 and will play into the hands of the doves in the MPC, who are keen to keep interest rates lower for longer. Cable managed to get above the 1.62 handle in the afternoon then jumped dramatically, briefly breaking 1.63, as the London session came to an end, while the dollar was sold off ahead of tonight’s FOMC statement. It appears the markets believe the statement will disappoint those hoping the recent run of good data will bring more hawkish tones re: rate rises. GBP/USD currently trades at 1.6309. Today brings a slew of key releases both from the UK and America. First up this morning, we have the Bank of England MPC minutes from the September 4th meeting. Markets will be looking for signs of anymore MPC members shifting position to join hawks McCafferty and Weale in voting for a rate rise. At the same time we have Unemployment and Average Earnings data from the UK, with pound bulls hoping the latter shows a pick up from last month’s poor reading. This afternoon brings US CPI data and then later we have the aforementioned FOMC statement. Tomorrow sees the Scottish referendum finally arrive with a slim victory for the ‘No’ vote expected. We expect a range today in the GBP/USD rate of 1.62 to 1.645.

Euro:

Yesterday saw the closely followed monthly German ZEW Economic Sentiment survey fall for the eighth consecutive month. The reading fell from 8.6 to 6.9 as tensions in Ukraine, low inflation and the economic slow-down weigh on business confidence in the eurozone. Although the fall wasn’t as great as expected, the reading is the lowest since 2012. At the end of the London session EUR/USD jumped, mirroring cables move on the rumours from the States re: a possible dovish FOMC statement. EUR/USD briefly touched 1.2990, however the gain was quickly pared. EUR/USD currently trades at 1.2955. This morning sees Final CPI from the eurozone with no change expected from the flash reading of 0.3%. GBP/EUR trades at 1.2588. We expect a range today in the GBP/EUR rate of 1.25 to 1.2680.

Aussie and Kiwi Dollars:

Overnight saw New Zealand’s current account print -1.07B when a slightly more modest -1.04B had been expected. Both the Aussie and the Kiwi reacted positively to the rumours re: the FOMC with AUD/USD briefly breaking above .91 and NZD/USD reaching .8220. AUD/USD currently trades at .9067 with NZD/USD at .8181. GBP/USD is at 1.80 with GBP/NZD at 1.9950. Tonight sees Q2 GDP from New Zealand, with 0.6% growth expected for the quarter. We expect a range today in the GBP/AUD rate of 1.7880 to 1.81. We expect a range today in the GBP/NZD rate of 1.9825 to 2.0050.

Data releases for the next 24 hours:

AUD: No data

EUR: Final CPI m/m

GBP: Average Earnings 3m/y, Claimant Count Change; MPC Asset Purchase Facility Votes; MPC Official Bank Rate Votes; Unemployment Rate

NZD: GDP q/q

USD: CPI m/m; FOMC Economic Projections; FOMC Statement; Federal Funds Rate; FOMC Press Conference