Sterling slips in spite of higher inflation [Video]

Today's Highlights

• Sterling slips in spite of higher inflation

• USD braced for host of Federal Reserve activity

Current Market Overview

Maybe no one actually believes the Bank of England (BoE) any more. UK inflation rose to 3.0% in September. That would seem to be the cherry on the icing on the cake for those demanding an interest rate hike from the Bank of England, but Sterling, which ought to have strengthened on the news, fell yesterday. BoE Governor Mark Carney offered heavy hints that we will see a 25 basis point hike from the BoE on 2nd November, but maybe traders aren’t convinced.

The fact that wage growth is lagging inflation does, as mentioned yesterday, pour cold water on the heated demands for higher interest rates. We will get the latest unemployment and average wage growth data for the UK this morning. That’ll be watched with rapt attention. Any narrowing of the gap between wages and inflation will boost Sterling, but a wage growth reading below 2.0% would have the opposite effect. Hold on tight.

Eurozone data is light all week, but we get the construction sector output data today. A month on month growth figure of 0.2% is forecast and that would leave the Euro to be swept around by external forces. But Europe has more problems than just data. The ‘mysterious’ death of investigative journalist Daphne Caruana Galizia on Monday is about as suspicious as an unexpected death can be. Small hatchbacks rarely spontaneously explode but the questions are being asked about why this particular Peugeot did so. Could it have anything to do with Daphne’s in depth look at the alleged murky arrangements between the heads of government in Malta and Azerbaijan over 18 year energy contracts that Daphne felt were linked to or orchestrated by Tony Blair?  With this and the far right rising in Austria, the EU has a few problems to manage.

The aforementioned external forces affecting the Euro include the US Dollar. This afternoon brings what is expected to be rather downbeat US housing market data and that should cause some concern at the US Federal Reserve, which appears to be readying itself for an interest rate hike. In fact, Philadelphia Federal Reserve Bank President, Patrick Harker, predicted the Federal Reserve would raise rates once more this year.  We have two other Fed members speaking today. I am sure they will be asked to concur with or deny that suggestion. We will also see the Fed’s Beige Book later this evening. That regional and anecdotal view of the US economy is an insight into the next Federal Open Market Committee meeting, because it forms part of the agenda. The USD is stronger this morning, but is still trapped around $1.17 against the Euro and just below $1.32 against the Pound.

Overnight tonight, we will get the September Australian unemployment data. A 5.6% unemployment rate is expected; the same as for August. The Reserve Bank of Australia will be watching because they are caught between interest rate hikes and potentially further cuts. Anything consumer related is crucial to their decision making. Hence, unless we see circa 15,000 jobs being created in September, we will see volatility in the Aussie Dollar overnight. Automated orders will be very useful for anyone with a short to medium term requirement.

And prepare yourself, because tomorrow is Conflict Resolution Day. It is organised by the Association for Conflict Resolution and, as you may have suspected, it is all about resolving conflicts. The annual event has run since 2005. I apologise for not mentioning it sooner but 18 hours should be enough to prepare without any arguments.