• UK wages growth misses expectation
  • Euro posts mixed performance
  • All eyes on US inflation tomorrow

Sterling gains on positive inflation numbers

A larger than expected jump in UK inflation data allowed the currency to continue its recent run of strength across the board yesterday, gaining an average of 0.9% across the board. While markets were predicting inflation to rise by 0.2% to 2.8%, sentiment was boosted when it rose 0.1% more than expected.

With the Bank of England (BoE) meeting set to take place on Thursday, investors will be paying close attention to any comments from Mark Carney with regards to the impact the increased inflation figure is having on the economy. Many have begun to speculate that higher than predicted inflation could push the BoE to raise rates in the medium term so markets will be looking for any hint of this from the governor.

This morning we have had the release of UK employment and earnings data. While ILO unemployment levels fell by 0.1%, average earnings failed to rise by 0.2% as was expected, which has seen the pound shed this morning’s gains.

German inflation stable at 1.8%

The euro posted a mixed performance yesterday, losing 0.8% against the pound but trading flat against the dollar. A lack of economic data releases left the single currency largely exposed to wider market pressures, most notable was the positive inflation data from the UK, which punished the single currency.

This morning we have had the release of German CPI inflation numbers which came out stable as expected. The monthly figure remained at 0.1%, while the annualised figure was steady at 1.8%. With inflation remaining stagnant for so long, it provides some weight behind the argument that the ECB isn’t in a position to taper the quantitative easing program in the short term. 

Greenback stead ahead of inflation data

The greenback posted a mixed performance yesterday, trading flat against the euro but losing just shy of 1% against the pound. A slight improvement in JOLTS job openings provided a modicum of stability for the dollar. However, it wasn’t enough to combat the rapidly strengthening British pound.

While a lack of notable economic data releases could see focus fall to wider markets today, the dollar is still a key focal point going forward. Tomorrow we have the release of US inflation, which is expected to rise by 0.2%. If this prediction turns out to be correct we could see some strong upside for the greenback as the Fed is due to meet next week, with the next interest rate hike at the forefront of investors’ minds.

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