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UK inflation fell to its lowest level since September 2021 in February.
UK inflation fell to an annualised 3.4% in February, below market expectations of 3.5% and well under last month’s 4%.
The Consumer Price Index (CPI) is now running at its lowest rate since September 2021 after a steep decline in food prices. The data arrives just in time to sharpen scrutiny on the Bank of England’s interest rate decision tomorrow afternoon.
Tuesday was a rather unsettled day in currency markets. The pound recovered some pretty steep losses to finish the day around where it started against the euro and the US dollar, while EUR/USD followed a similar trajectory of early losses balanced out by an afternoon fightback.
Germany’s ZEW Economic Sentiment Index rose to its highest since February 2022 this month. The positive mood is a continuation of eight straight increases for the index and reflects growing anticipation of interest rate cuts over the next couple of months.
Building permits in the US came in above expectations in February’s preliminary data. Approvals for new residential construction increased 1.9% from the month prior, driven by authorisations for single-family homes.
The Bank of Japan’s historic decision to raise interest rates for the first time since 2007 didn’t do much to boost the Japanese yen. In fact, the yen lost over 1% to the US dollar on Tuesday. That’s largely because the central bank was not exactly gushing about the prospect of lifting rates into positive territory in the notes it published about the decision.
Canadian inflation, meanwhile, fell to 2.8% in February, well below forecasts of 3.1%. The Canadian dollar dropped sharply against its rivals upon the release of those numbers, although it had recovered some of its losses by the end of trading.
AI Wunderkind Nvidia is the talk of the town in stock market circles. Some had even been predicting it could double in value this week, a prediction commentators at Bloomberg compared to 2021’s “meme-stock mania”. Nvidia’s stock was down by around 3% on the week as of yesterday evening.
Lastly, UK chancellor Jeremy Hunt hinted at the prospect of a general election taking place in October. Guesses for when it would take place have ranged from May to next January, but Hunt explained October would give the Treasury just long enough to conduct its spending review before April 2025.
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GBP: Inflation ramps up pressure
The Bank of England will be watching all of the UK economic data like hawks, but the one that cuts through most to the public is generally inflation. Policymakers have held on against pressure to loosen interest rates up to now, but how much longer they can last will depend on the political reaction to February’s figures coming in below expectations.
GBP/USD: the past year
EUR: ZEWming up
You’d have to go back to before the outbreak of war in Ukraine to find a result as positive as this month’s in Germany’s ZEW Economic Indicator Index. March’s reading was 31.7 (with zero being neutral sentiment) versus expectations of around 21. It’s been a long road, but it seems the mood music in the German economy is improving in tune with the ECB’s interest rate timeline.
GBP/EUR: the past year
USD: Quiet ahead of the Fed
As tends to be the case with an FOMC meeting on the horizon, US dollar markets seem to be in limbo as they await both the interest rate decision and more importantly Jerome Powell’s comments. Few are predicting rates to be cut soon, but there will be many looking for a sign that the current outlook for monetary loosening has changed.
EUR/USD: the past year
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