Sterling traded broadly flat yesterday as an inflation slowdown helps consumers but provides scope for the MPC to defer the next rate hike until later this year.
Overall price growth fell slightly to 3% in December YoY as forecasts predicted and down from 3.1% previously. Core CPI also slowed to 2.5% growth for the year in December and not reaching 2.6% expected – The data suggests inflation may have reached a peak and a slight ease on household incomes towards the end of 2017.
There is no economic data expected today, however an external member of the BoE’s Monetary Policy Committee, Michael Saunders, is due to speak – He was one of the first members to call for an interest rate hike last year.
GBPEUR opened at 1.1249 and undulated throughout the session through ranges of 1.1246 and 1.1277 and conceded to 1.1257 by close
GBPUSD opened at 1.3789 and relinquished part of sterling’s recent gains from the start. The pair hit the session’s low of 1.3746 near midday. GBP managed claw back most the earlier losses to close 1.3775
In Europe, the euro had been held back yesterday as members of the Social Democrats in one of Germany’s regions voted against talks with Merkel’s conservative Christian Democrats, re-stoking concerns whether she is able to carry off a ‘grand coalition’.
Additionally, the speed of the euro rise in the opening days of 2018 has invited some comments from ECB officials this week. An interview with the vice president of the ECB, Vitor Constancio, said he did not rule out that the economic stimulus policy would be accommodating for a long time. Controversially, Germany’s representative on the ECB’s policy making body stated it would be ‘appropriate’ for the ECB to cease bond purchasing – It appears the ECB is playing ‘good cop bad cop’ in policy terms but it is certain that the recent performance of the currency has created a lot of uncertainty within the ECB body
In the US, the dollar moved slightly off recent lows yesterday, the rebound was helped be euro coalition doubts. Data did little to help support the dollar however, NY state manufacturing index fell as expected but below forecasts to 17.7 in January from 19.6 in December. Inflation expectations rose to 2.82% in December versus 2.61% indicated in November.
Industrial data is expected to show a rise in economic activity later today and there are two scheduled Fed speakers who will provide more of an insight in the expect rate hikes
EURUSD opened at 1.2258 fell from the open as political uncertainty weighed in on the euro. The pair fell to lows of 1.2201 in the afternoon and rebounded to close 1.2235