GBP: Inflation also disappoints

EUR: Ignored for now

USD: Fed minutes at 7pm

Sterling

Support for sterling from the economic data has evaporated in the past few days with a weak jobs report and a disappointing inflation number taking some of the wind out of sterling’s sails. Inflation settled back to 2% in July having hit 2.5% in June, and although we believe that the headline rate of price increases could hit 4% by the end of the year, at the moment the Bank of England will be happy to look through the increases in energy and clothing costs.

It therefore seems to us that those talking up a rate rise from the UK as soon as summer next year may be a tad too optimistic; the cusp of 2022/2023 looks more likely to us.

Sterling’s inability to push onwards shouldn’t last however but will be felt more acutely against the dollar than the euro in the coming days.

Euro

Sometimes you have to feel for the euro and yesterday was a case in point. The single currency by rights should have appreciated following some strong growth data but, in a world full of delta variant and Afghanistan problems, markets were simply not paying attention.

Given the prevailing mood and the weakness seen in data globally in the past 24hrs we don’t see a strong euro recovery anytime soon.

USD

We are seeing both sides of the USD smile story at the moment; a dollar that can run higher on both global uncertainty – Delta, Afghanistan – and a dollar that can be brought higher by US data with tonight’s Fed minutes.

Yesterday’s retail sales numbers from the US were disappointing and are from too long ago to really consider the natural decline that is likely as that variant shuts down stores and keeps people at home.

Tonight’s Fed minutes are also likely to be a one-way street for the USD given the meeting itself was before the most recent strong jobs report. If the report is dovish, then markets will call it stale, if it’s hawkish it will just add fuel to the prevailing mood of dollar outperformance.

Elsewhere

Well, well, well. A single case of Covid -19 in New Zealand seems to have been enough to delay a central bank from raising interest rates.

The forward guidance from the RBNZ was very bullish though and forecasts rates as high as 1.6% by the end of next year which is above what markets were forecasting before the meeting. This should keep NZD supported although the currency has not been able to retrace the losses it made after the initial announcement of the fresh lockdown.

Market rates

Today’s Interbank Rates at 08:23 against sterling. Movement vs Friday.

Euro	€1.172  ↓
US dollar	$1.375  ↓
Australian dollar	$1.893  ↑
South African rand	R20.45 ↓
Japanese yen	¥150.7  ↓

Have a great day.