Inflation Rules The Day
14 February, 2019
We hit mid-week yesterday and the pound was still floundering, moving up and down in a half-cent range against the euro and 1 cent range against the stronger US dollar.
The UK eco stats were led by the key consumer price index released at 9.30am. We were expecting a drop in the cost of living with 2.1 percent last month and an expected 1.9 percent this month, but the actual reading came out at 1.8 percent. This is now 0.2 percent below the Bank of England’s benchmark target level, showing perhaps the small interest rate rise we had last year, has more than done what it was intended to do. With that in mind, the likelihood of the BoE raising rates again anytime soon are slim to none, a negative for the pound going forward, as higher interest rates mean better returns for investors, while the current long term low rates give little incentive for people to buy.
As US markets opened we saw a very brief spike up for the pound, but this swiftly dwindled away as the US markets digested the current Brexit rhetoric and UK inflation readings ahead of their own inflation figures at 1.30pm. These came out better than expected, with CPI staying at 2.2 percent, following on from the previous month, despite a dip to 2.1 percent expected. All positive for the US economy as a greater movement away form the 2 percent target will lead investors to expect an interest rate rise may well be back on the cards for the Fed in the coming months, should inflation continue to rise.
This morning we have German GDP, EU GDP and a speech by Bank of England member Vlieghe at 9.30am followed by US retail sales after lunch at 1.30pm.
Plenty of key data to help sway investor sentiment whilst the deadlock of Brexit continues, so with a currency purchase to make with sterling in the coming weeks, it might be prudent to speak with one of the team sooner rather than later about booking your rate.
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