Forex Today: Pound Sterling slides on soft UK inflation data
Here is what you need to know on Wednesday, October 16:
Pound Sterling stays under selling pressure early Wednesday as markets assess September inflation readings from the UK. In the second half of the day, Export Price Index and Import Price Index data for September will be featured in the US economic docket.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.13% | 0.64% | 0.03% | 0.02% | 0.24% | 0.36% | 0.05% | |
| EUR | -0.13% | 0.53% | -0.06% | -0.08% | 0.13% | 0.26% | -0.11% | |
| GBP | -0.64% | -0.53% | -0.62% | -0.59% | -0.40% | -0.27% | -0.58% | |
| JPY | -0.03% | 0.06% | 0.62% | 0.00% | 0.20% | 0.32% | 0.04% | |
| CAD | -0.02% | 0.08% | 0.59% | -0.01% | 0.20% | 0.32% | 0.02% | |
| AUD | -0.24% | -0.13% | 0.40% | -0.20% | -0.20% | 0.12% | -0.18% | |
| NZD | -0.36% | -0.26% | 0.27% | -0.32% | -0.32% | -0.12% | -0.31% | |
| CHF | -0.05% | 0.11% | 0.58% | -0.04% | -0.02% | 0.18% | 0.31% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
The UK's Office for National Statistics (ONS) reported that annual inflation in the UK, as measured by the change in the Consumer Price Index (CPI), declined to 1.7% in September from 2.2% in August. This reading came in below the market expectation of 1.9%. In the same period, the Producer Price Index (PPI) - Input declined by 2.3%. Finally, the Retail Price Index rose 2.7%, down sharply from 3.5% in August. GBP/USD turned south following UK inflation prints and was last seen losing more than 0.5% on the day below 1.3000.
The negative shift seen in the risk mood in the American session on Tuesday helped the US Dollar (USD) preserve its strength. The USD Index registered small gains on Tuesday and continued to edge higher early Wednesday. At the time of press, the index was trading at its highest level since early August above 103.30. Meanwhile, US stock index futures trade mixed after Wall Street's main indexes registered large losses on Tuesday.
During the Asian trading hours, the data from Japan showed that Machinery Orders declined by 1.9% on a monthly basis in August, following the 0.1% decline recorded in July. USD/JPY showed no immediate reaction to this data and was last seen moving sideways in a narrow range above 149.00.
EUR/USD finds it difficult to stage a rebound after closing in the red on Tuesday. The pair inches lower in the European morning on Wednesday and trades below 1.0900.
AUD/USD stays on the back foot and fluctuates in negative territory below 0.6700 early Wednesday. In the Asian session on Thursday, September employment data from Australia will be watched closely by investors. The market expectation is for the Unemployment Rate to hold steady at 4.2%.
After reaching its highest level in over two months above 1.3830 on Tuesday, USD/CAD reversed its direction and snapped a nine-day winning streak after the data from Canada showed that the BoC Consumer Price Index Core rose 1.6% on a yearly basis in September, compared to the 1.5% increase recorded in August. At the time of press, USD/CAD was trading in a tight range below 1.3800.
Gold continues to edge higher early Wednesday and trades at its highest level since September 26 above $2,670.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
