Sterling Dips on Cooler Inflation Data
GBP
The pound saw small decline on Wednesday following data that revealed a more significant-than-expected cooling of British inflation in October.
GBP/USD has risen significantly since yesterday but is down 0.2% this morning, currently trading at 1.2460 (interbank). Meanwhile, GBP/EUR is currently trading at 1.1485 (interbank).
UK inflation (CPI) increased by 4.6% in the 12 months leading up to October, down from September's 6.7% rise. This marked the lowest reading in two years, falling below the anticipated 4.8%. Core inflation, which excludes food and energy prices, also saw a smaller-than-expected increase, rising by 5.7% compared to 6.1% in September, and below the estimated 5.8%. The Bank of England recently halted its series of interest rate hikes, bringing its key interest rate to 5.25%, the highest level since the 2008 financial crisis. Despite the economy edging towards recessionary conditions, officials have emphasized that they are not currently considering a reduction in interest rates.
Data Today (GMT):
07:00 - Core CPI (Oct) 5.7% vs 5.8% forecast
07:00 - CPI (Oct) 4.6% vs 4.8% forecast
EUR
EUR/USD has declined by 0.2% to 1.0848, retracting from its recent peak reached on Tuesday, which marked the highest level since August. This movement comes ahead of the upcoming release of eurozone industrial production data, anticipated to reveal a significant drop in September.
On Tuesday, growth data unveiled that the eurozone economy experienced a marginal contraction quarter-on-quarter in the third quarter. The slight contraction in the eurozone economy during the third quarter emphasises the anticipation of a technical recession if the fourth quarter shows a similar level of weakness.
During the third quarter of this year, the eurozone recorded a 0.1% decline in its Gross Domestic Product (GDP), signalling the first contraction since the lockdown periods in 2020. Notably, this contraction is occurring amid a backdrop of rising interest rates aimed at addressing increasing inflation.
Despite this, ECB President Christine Lagarde stated last week that interest rates will remain restrictive for at least several quarters, emphasising the persistence of elevated inflation.
Data Today (GMT):
10:00 - Industrial Production (Sep) -1.1 vs -1.0% (forecast)
USD
The dollar index, which tracks the U.S. dollar against a basket of six other currencies, rose 0.1% to 104.057, not far from Tuesday's two-month low of 103.98.
The U.S. dollar was impacted following yesterday’s data revealing that U.S. inflation remained unchanged in October. The annual figure, which increased by 3.2%, fell below expectations and was a decline from the 3.7% rise observed in September. Furthermore, core inflation decelerated more than initially predicted.
Persistent inflation has been a focal point for the Federal Reserve in maintaining its hawkish stance, particularly after unexpected increases in August and September.
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Fed officials were determined to uphold a hawkish stance leading up to this release. The downside surprise had a notable impact on the dollar as traders discounted the likelihood of another rate hike this year, shifting their focus to speculations about when the Fed might initiate rate cuts.
Later in the session, data on U.S. retail sales for October is set to be released, with analysts anticipating a 0.3% decrease from the previous month, during which retail sales saw a 0.7% increase.
Data Today: (GMT)
13:30 - Core PPI (Oct): 0.3% (forecast)
13:30 - PPI (Oct): 0.1% (forecast)
13:30 - Core Retail Sales (Oct): -0.2% (forecast)
13:30 - Retail Sales (Oct): -0.3% (forecast)?
CAD
USD/CAD is experiencing downward pressure following the release of less robust U.S. inflation data on Tuesday. At present, the USD/CAD exchange rate is trading at 1.3702 (interbank).
This morning, oil prices experienced an increase due to better-than-expected factory output and retail sales in China. This positive news comes a day after the International Energy Agency (IEA) raised its forecast for oil demand growth for the current year.
Both Brent futures and U.S. West Texas Intermediate (WTI) have witnessed a rise of approximately 0.2%.
Furthermore, the surge in crude oil prices appears to be bolstering the Canadian Dollar.
Although economic data releases from Canada are limited this week, wholesale data is scheduled for release later in today’s session.
Data Today (GMT):
13:30 - Wholesale Sales (Sep) 0.0% (forecast)
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