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(Update) Inflation data effect on the British Pound

GBP
Sterling kicked off the week with enthusiasm, quickly rising through the early morning trade to a new August high against the dollar and almost 2 cents higher than Friday’s low against the euro. The only data release, which can hardly be used as a justification for the move, was the Rightmove House Price Index which fell by 0.8% throughout July. That lack of justification perhaps hinted at the subsequent retrace as traders saw the movement as an opportunity to sell the rally and the pound was forced all the way back down as we moved through the afternoon. The week’s domestic highlight is this morning with all the inflation readings being released at the same time: 9:30am. CPI, the Bank of England’s target measure, is clearly the most important but all are relevant and will have a bearing on the views as to when the Bank will consider making a move from their current ultra-loose monetary policy.

 

CPI M/M News Expected -0.3% previous 0.0% due out 9:30am (Update – Actual a better than expected 0.1%)
PPI M/M News Expected -1.9% previous -0.18% due out 9:30am (Update – Actual a better than expected -0.9%)

 

CPI Main points
The Consumer Prices Index (CPI) grew by 0.1% in the year to July 2015, up from 0.0% in the year to June 2015.
A smaller fall in clothing prices on the month compared with a year ago was the main contributor to the rise in inflation.
Falling prices for food and non-alcoholic beverages partially offset the rise.
CPIH (not a National Statistic) grew by 0.4% in the year to July 2015, up from 0.3% in June 2015.

 

PPI Main Points
The price of goods bought and sold by UK manufacturers, as estimated by the producer price index, continued to fall in the year to July 2015. Crude oil continued to drive down input prices, feeding through to a drop in output prices of petroleum products.
Factory gate prices (output prices) for goods produced by UK manufacturers fell 1.6% in the year to July 2015, unchanged since May 2015.
Core factory gate prices, which exclude the more volatile food, beverage, tobacco and petroleum products, rose 0.3% in the year to July 2015, compared with a 0.1% rise in the year to June 2015.
The overall price of materials and fuels bought by UK manufacturers for processing (total input prices) fell 12.4% in the year to July 2015, up from a fall of 13.1% in the year to June 2015.
Core input prices, which exclude the more volatile food, beverage, tobacco and petroleum products fell 4.9% in the year to July 2015, compared with a fall of 4.7% in the year to June 2015.

 

USD
“Data dependence” – perhaps not tier 1, the still-important Empire State Manufacturing Index was the worst reading since March 2009 and drastically missed its expected rise of 5.0 by falling 14.9 index points. The FED have suggested that an excessively strong currency won’t have a huge influence on US manufacturing yet that isn’t exactly the story that this data release appears to suggest, so it will be interesting to see how they address this type of result next month. The National Association of Home Buyers’ Housing Market Index also fell slightly and this afternoon the housing theme continues with building permits and housing starts being the only data of note for the US.

 
EUR
The euro gave up ground to both the pound and dollar in early trade yesterday but while it was able to bounce back to a degree against the pound, the day closed with EURUSD teetering around the lows of the day. The strong rally in the middle of last week appears to have run its course and the risk again points back towards the psychological 1.1000 and below again. With no data scheduled for release at all today, the single currency will be susceptible to the results of the busier economic calendar in the UK but also the bigger picture themes that continue to control sentiment; diverging monetary policy will continue to weigh on the euro and without the prospect of supportive news, it would not be surprising to see the currency continue to drift lower.

 

 

UK HEADLINES
Telegraph – World shipping slump deepens as China retreats.
The Times – Currency woes hit emerging markets.
FT – Banks face billions in forex civil claims.

 

Pound Sterling (GBP), Euro Currency (EUR), US Dollar (USD) exchange rates commentary is provided by Argentex (Ag-Fx.com)