Inflation Numbers In The Spotlight

Pound tentative as key UK & US data looms

The Pound kicks off the trading week marginally higher against the US Dollar, trading higher around $1.2230 after a significant depreciation last week. A hawkish Fed Chair Jerome Powell kept the Greenback supported throughout as markets prepare for key economic data from both the UK and US throughout the week. Earlier this morning Rightmove announced that UK housing prices have fallen at its quickest pace in five years reiterating the tight credit conditions as a result of high interest rates delivered by the Bank of England.

Today’s economic schedule is rather muted with Fed and BoE speakers in focus ahead of a stacked week. UK jobs data although important will have some missing elements that could hamper its accuracy and impact on both the Pound and BoE monetary policy. That could make the upcoming UK inflation print that much more influential.

No major data.

Euro recovers further toward $1.0700

The Euro looks to extend Friday’s optimism against the US Dollar, encouraging EUR/USD to attempt another move to the $1.0700 zone at the beginning of the week. On the flip side, the Greenback runs out of steam following Friday’s ephemeral visit to weekly peaks around the 106.00 barrier when tracked by the USD Index (DXY). The divergence between recent hawkish Fedspeak and investors’ perceptions of a protracted pause in the Federal Reserve’s (Fed) normalisation programme is expected to dictate the price action around the US Dollar.

Around the European Central Bank (ECB), there was nothing new in recent comments from Christine Lagarde. The ECB president reiterated that inflation remains too elevated and that the bank should bring inflation down to its target in a timely fashion and maintain the current restrictive stance for a longer period.

No major data.

Dollar edges lower ahead of key U.S. inflation release

The new week has started with the Dollar on the backfoot as traders await the release, on Tuesday, of the U.S. consumer price data for October, for an update on the Fed’s progress in its battle to keep lowering inflation from last year’s multi-decade highs. Inflation is expected to have risen 0.1% on a monthly basis. September's CPI rose 0.4% on a surprise surge in rental costs, but also showed a moderation in underlying inflation pressures.

A sharper cooling could fan the peak rate talk, fuelled by October's employment report, which pointed to easing conditions in the labor market. However, Fed Chair Jerome Powell last week hinted that the battle against inflation may not be over yet, and a further interest rate hike was possible - a view that was largely backed up by a series of his colleagues throughout the week. More Fed speakers are lined up this week and are likely to echo Chair Powell in leaving the door open for further hikes, which could support the Dollar, particularly if the inflation data suggests prices remain sticky.

No major data.

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