Today's insight: Uptick expected in UK inflation | USD traders nervous ahead of probable rate cut | Canadian inflation drop softened by US data

Uptick expected in UK inflation

This morning's UK inflation data is expected to reflect another month where the annual rate of inflation stays at 2.2%. However, we're also expecting a small rise in the core level of inflation, to an annualised 3.5%. Core inflation is a calculation that strips out the more volatile elements, such as food and energy. A rise in this reading will be worrisome for the Bank of England and is likely to strengthen the pound because it reduces the likelihood of rapid UK interest rate cuts. We start the day with the pound trading at USD 1.3160 and EUR 1.1830.

USD traders nervous ahead of probable rate cut

In the last week, we have seen growing levels of speculation that the US Federal Reserve will cut their base rate by more than 25 basis points when they meet today. It seems almost an accepted fact that they will cut the base rate but will it be 25 basis points or will it be 50 basis points? We will find out this evening, UK time, so the UK markets will be closed by that point. What that should mean is that the US dollar will be narrowly range trading for the bulk of the day but is likely to be much more volatile overnight and certainly after 7:00 PM, UK time. As at this morning, in the interbank market, The US dollar is trading at $1.3160 against the pound and $1.1120 against the euro. These levels are largely unchanged from yesterday.?

Canadian inflation drop softened by US industrial production

The value of currencies is always a juggling act between positive and negative news. Canada's headline inflation rate contracted by 0.2% in the month of August after a 0.4% uplift in July. The core inflation rate also contracted by 0.1% in the month bringing the annual rate of core consumer price inflation down to just 1.5%. On the face of it, that ought to have weakened the Canadian dollar. However, Canada's number one export market is the USA and they published stronger than expected industrial production numbers for August; 0.8% growth, which nearly wiped out the contraction they saw in July. That improvement in the US industrial production was enough to offset the negativity surrounding the Canadian inflation numbers and the GBP/CAD exchange rate trickled marginally lower. This pair sits at CAD 1.7880 this morning. Although there is no major Canadian data due for release today, we will see inflation numbers for the UK and an interest rate decision in the US, so further volatility is unavoidable.

NZ GDP contraction should weaken Kiwi dollar

Late this evening, UK time, NZ will release the economic growth data for the second quarter of 2024. If the forecasters have got their numbers right, in the wake of 0.2% growth in Q1, we will see a contraction of 0.4% in Q2 which will bring the annualised number to a 0.5% contraction. The New Zealand economy has been in the doldrums with negligible growth for the whole of 2024, prompting calls for expansion policies from the Reserve Bank of New Zealand and the NZ government. Although the RBNZ did cut their base rate by 25 basis points at their last meeting, many believe this is far too little and probably too late. If tonight's data is as the markets expect, those calls for further rate cuts will become wider and louder. As at this morning, the GBP/NZD rate is level at NZD 2.1225.?

Today's Major Economic Releases

06:00 GBP Consumer Price Index

12:30 CAD BoC Consumer Price Index Core (YoY)?(Aug)?

12:30 CAD Consumer Price Index (YoY)?(Aug)?

18:00 USD Fed Interest Rate Decision?

18:00 USD Fed Monetary Policy Statement?

18:00 USD FOMC Economic Projections?

18:00 USD Interest Rate Projections

18:30 USD FOMC Press Conference?

22:45 NZD Gross Domestic Product

Interbank Exchange Rates