Sterling could be in for some shocks today [Video]

Today's Highlights

• Poor data and dovish Reserve Bank of Australia governor weaken Australian Dollar

• Chinese inflation drops sharply

• Sterling could be volatile with UK data

Current Market Overview

Disappointing day for Australian Dollar

The day started with a very poor Consumer Sentiment Index from Australia. The Westpac index fell by 0.6% this month after a poor 0.2% rise last month.  That allowed the Sterling – Australian Dollar rate to rise a cent or so and that was enhanced by the Reserve Bank of Australia (RBA) Governor putting off the timing of any interest rate hike. However, Philip Lowe did comment that the next hike would come as a shock to many Aussies after seven years of no rises.

Chinese inflation belies forecasts

The rate of Chinese inflation also slipped a little but remained in growth territory. A 2.1% annualised reading was well down on last month’s 2.9% and half a percentage point below the market forecasts. Forecasters are having a torrid time this week; getting things very wrong in so many ways.

Volatility ahead for the Pound

Nearer home, Sterling will have a volatile morning. The data diary includes industrial and manufacturing data, the UK’s trade balance and the National Institute of Economic and Social Research (NIESR) estimate of Gross Domestic Product (GDP) growth. Overall, the forecasts look good, and this boosted the Pound in the run up to the data releases, but we have seen how wildly inaccurate those forecasts can be. Hence, the Pound could well react quite vigorously today.  A narrowing of the trade deficit is good news for the Pound – the decline to 0.1% growth in manufacturing output is not so great news.

All US Dollar traders want to know is when interest rate hikes will be – and how much?

This afternoon sees the release of the minutes from the last Federal Reserve meeting. As is ever the case, all anyone in the markets really wants to know is (1) when is the next rate hike coming? and (2) how much will it be? Any hints of an acceleration in the rate of change will strengthen the USD. Any discussion about reducing the vast amount of cheap money the Federal Reserve has unleashed on the global markets and share prices around the globe could be hit. So it is worth reading.