Daily Currency Insight

Today's Highlights

Sterling traders unnerved by weak inflation data

US Dollar strengthens on hawkish Fed tone

Australasian currencies weaker on Chinese data

FX Market Overview

Sterling strengthened after the UK inflation data showed a fall to1.6%; well below the BOE's target 2.0%. However, discounting pressure, the stronger Pound and falling energy prices were cited as the root causes of this dip and these are all highly variable.
So Sterling ended the day stronger than it started but this morning's retail sales data might put paid to that. The forecasts are for a small scale fall and that would be in keeping with the last three months as well. We will also get public sector borrowing data and that is likely to show a rise in government borrowing.

Yesterday evening saw the release of the minutes from the last Federal Reserve Open Market Committee meeting and they reflected a move towards earlier interest rate rises as long as the flagging labour market growth picks up. Most members of the Open Market Committee saw little risk of falling inflation. So whilst inflation isn't at concerning levels yet, in their minds, there is scope for rate hikes in the medium term. The Dollar strengthened after the release of the minutes and remains at the stronger end of its ranges today.

The Euro had a less exciting day; meandering in the wake of the Pound and USD and sinking slowly in the East. There is a whiff of infighting amongst the member states.
German, supported by a phalanx of Nobel Prize winning economists, is accursing other Eurozone members (Italy and France mainly) of breaking fiscal rules, running high deficits and jeopardising the Eurozone's recovery. Many of the economists note the austerity measures in Europe are entirely the wrong policy and a period of expansionist policies are called for. Prof Peter Diamond, described as the world's leading expert on unemployment, said, "Historians are going to tar and feather Europe's central bankers". These experts see the risk of depression in Europe as a real and present danger. This morning's purchasing managers indices are likely to pour more cold water on the recovery hopes and that whole negative scenario is weighing on the UK's recovery prospects because Europe is the UK's largest trading partner.

Manufacturing data from China hit a 3-month low last month and that has caused concerns for the economies of Australia and New Zealand; both heavily reliant on China for export sales. We have seen a little weakness in both the Aussie and Kiwi Dollars overnight.

As well as those mentioned above, today's data released include US business and consumer confidence indices and the weekly jobless claims figures. The expectation is that this data will be almost universally poor, so the US Dollar is likely to give up some of its gains.

Away from the market, a robot, designed to study how robots can interact with humans, has hitchhiked its way across Canada and it has become an internet hit in the process. HitchBOT has been a lot more successful in hitchhiking than most but I wonder what it learned about human interaction and how did it not get stolen or bot-napped?