Sterling soars as UK’s inflation rises to 2.9%, U.S. equities reach record highs, safe haven assets lose appeal

Sep 13 • Morning Roll Call • 50 Views • No Comments

The major currency talking point during Tuesday’s trading sessions, concerned the soaring rise of the UK’s pound, versus its peers. U.K. CPI inflation came in at 2.9% YoY for August, missing the forecast and increasing from the 2.6% recorded in July. The MoM rise was 0.6%, soaring from the -0.1% recorded in July. As a consequence of the rise in consumer price inflation, sterling soared. Investors concluded that the BoE’s monetary policy committee would look to raise the UK’s base rate from 0.25%, if not this Thursday (when the latest decision is announced), then certainly in the short term.

However, with GBP/USD rising from 1.20 to 1.32 in 2017, reaching a 2017 high on Tuesday, and with EUR/GBP falling from 0.93 to 0.90 during the past three weeks, the central bank may believe that the UK’s inflation rate will recede, during the coming months. GPB/USD rose by circa 1% to end the day at approx 1.3284, breaching R3. A similar pattern was replicated with sterling versus its other peers; EUR/GBP falling through S3, to end the day falling through the critical 90.00 handle, to a daily (and three week low) of 89.821. Other than the rest of the inflation data published by the UK’s stats. body the ONS, there was a lack of economic calendar news from Europe. The euro gained versus the majority of its peers on Tuesday, with the exception of its sharp fall versus sterling.

As is customary, given that the majority of the UK’s leading companies in the FTSE 100 are American owned, the rise of sterling caused a negative, correlated fall in the UK’s main equity index, by 0.17% on the day. The other major European equity indices closed up; DAX closing up 0.40%, CAC up 0.62% and the STOXX 50 up 0.50%.

News from the USA concerned a narrative building that Trump’s administration will eventually deliver on its promised corporate tax cuts, the promise is the main reason equities have rallied since his inauguration, as opposed to increased earnings by the top corporations. This potential tax cut, combined with hurricane Irma not wreaking as much havoc as initially feared and the North Korean tensions suddenly and miraculously falling off the radar and disappearing from the news agenda, ensured that the relief rally which emerged yesterday continued. The DJIA closed up 0.28%, SPX up 0.34%, both indices posting new record highs.

Naturally safe haven assets have lost their attraction in this two day rally, Japanese yen, the favoured currency for refuge, fell versus the majority of its peers on Tuesday; USD/JPY ending the day breaking through R2, up circa 0.7% at 110.13. A similar yen loss was experienced versus the euro whilst GPB/JPY rose through R3 and up by approx 1% on the day, to 146.31. Gold fell to an intraday low of $1322, before recovering to end the day at circa $1330. WTI oil rose by circa 0.4%, to $ 48.76 per barrel.

Significant calendar events for September 13th, all times quoted are London GMT time

06:00, currency impacted EUR. German Consumer Price Index (YoY) (AUG F). Germany’s CPI reading is expected to remain unchanged at 1.8%.

08:30, currency impacted GBP. Weekly Earnings ex Bonus (3M/YoY) (JUL). Earnings are forecast to rise to 2.2%, from the 2.1% level recorded in Q1 2017.

08:30, currency impacted GBP. ILO Unemployment Rate (3M) (JUL). The UK’s headline unemployment rate is predicted to remain steadfast, at 4.4%.

09:00, currency impacted EUR. Euro-Zone Industrial Production w.d.a. (YoY) (JUL). The estimation is for a rise to 3.3%, from the 2.6% reading registered for June.

11:00, currency impacted USD. MBA Mortgage Applications (SEP 08). Analysts will be looking for applications to remain consistent, at the 3.3% level published last week.

14:30, currency impacted USD. DOE U.S. Crude Oil Inventories (SEP 08). Given the disruption of the recent storms and hurricanes in the USA, oil supply and its price are a major issue for commodity traders. The expectation is for an inventory fall to 4160.14k, from 4580k.

18:00, currency impacted USD. Monthly Budget Statement (AUG). The expectation is for a severe deterioration of this specific deficit to -$130.5b, from the -$42.9b registered for July.

 

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