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Sterling was in the spotlight this morning after publication of September's inflation report.
Headline inflation in the United Kingdom fell below the Bank of England’s target to 1.7% in September. GBP/EUR and GBP/USD both fell sharply this morning on the news, which marked the first time in three years inflation had registered below 2%.
Financial markets had not expected the headline read to fall as much as it did. Most had predicted it would come in at around 1.9% but a sharp fall in core inflation to 3.2%, along with the price of petrol and air fares contributed to the lowest inflation rate since April 2021.
Sterling enjoyed a strong day yesterday, climbing by around a quarter of a cent against the euro and the US dollar. A strong set of employment figures helped facilitate this, as did a marginally improved risk appetite across global markets.
In a much needed boost for Germany, the ZEW economic sentiment survey came in at 13.6 in October, easily clearing consensus estimates. The improvement was particularly significant considering its followed a yearly low of 3.6 set in September.
The annualised rate of French inflation was meanwhile revised down at the final read to 1.1% in September. Spain’s inflation finished at 1.7%, as expected. In a light week, the European Central Bank will have a paltry selection of new information on which to base Thursday’s interest rate decision.
A disconcerting new report from the International Monetary Fund (IMF) predicted global debt would pass $100tn by the end of December. Government debt levels have been on a steady march higher since the pandemic and many experts have warned it could cause a financial crisis.
Oil benchmarks continued to fall on Tuesday as fears of escalation in the Middle East faded, at least in the near term. Brent crude is now down almost 10% from its peak last week, as Israel told the US that it would avoid oil and nuclear targets in Iran and focus on military zones.
New York state’s manufacturing index fell markedly into negative territory in October. Currency markets tend not to pay too much attention to state-specific releases, yet with the flow of data slow and geopolitical risks cooling slightly, it did have a slight dampening impact on the US dollar on Tuesday.
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GBP: Nuanced jobs data
With unemployment falling, it took a smaller piece of the jobs report to support sterling. The number of people employed in the UK rose to 373k in the three months to August, well clear of the forecast 250k.
GBP/USD: the past year
EUR: Shot in the arm
Germany ZEW report gave the euro a nice boost on Tuesday. The positive news will have been as good for morale as it was for fundamental analysis, particularly ahead of Thursday’s interest rate drama.
GBP/EUR: the past year
USD: Empire state setback
In busier times, a dreary manufacturing report from New York could have been brushed off as an aberration. However, given the rare scarcity of US data to begin this week, markets ran with the news and consigned the US dollar to a day of minor losses to its continental rivals.
EUR/USD: the past year
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