UK CPI falls marginally as expected, as US posts strong retail figures in an otherwise quiet day

Tom Tong14/Aug/2013Currency Updates

USD

Yesterday we saw USD gain substantial ground against most of its major counterparts including a 0.4% increase against EUR and a 1.2% increase against JPY. This was partly due to the retail sales report in the US which came in at 0.2%, marginally under the 0.3% that was expected. This data is showing that American households are regaining momentum as employment climbs, which results in added speculation that Bernanke could begin tapering the QE programme as early as next month.

Employment is the US sees a steady growth as employers added 2.28 million workers to payrolls in the year ended July, due to that we saw the unemployment rate drop to 7.4% last month, the lowest figure seen in more than four years. Additionally the cost of goods imported into the US saw growth of 0.2% in July less than forecast, detailing the biggest drop in auto-mobile import prices in more than 20 years showing a sluggish growth in the US, helping hold back inflation.

Little to no top tier data released today, we will see the USD Producer Price Index released later in the afternoon, forecast at 2.4% marginally lower than the previous figure of 2.5%, however the focus this week will be on USD Consumer Price Index released tomorrow at midday.

GBP

The housing sector in the UK, specifically London, has grown exponentially to the point that many analysts point to warning of a bubble similar to that of 2007. This has come about because of the government’s “Help to buy” scheme which guarantees a portion of new home mortgages allowing banks to accept more risk on their balance sheets. Currently London house prices are at (on average) 12.5 times the average salary.

Consumer Price Index (CPI) came in as forecast at 2.8% for July. This is down from 2.9% in June and is a measure of Inflation in the UK economy. This is still above the Bank of England’s target of 2% (as it has been every month for the past two years). That being said, without the volatile items such as energy, food, alcohol and tobacco; the index would have been at 2%.

Today the UK economy will see the Bank of England’s Monetary Policy Committee minutes. The effect that this will have on markets may be limited however due to the forward guidance policy initiated last week. The markets will be watching the rhetoric and tone of the meeting for any idea on future thoughts on asset purchase or interest rates.

EUR

The Euro reached a 6 week low against sterling yesterday off the back of UK CPI figures as opposed to Euro weakness. Although the ZEW survey came in better than expected at 44.0 as opposed to expectations of 37.4, this did not help the euro regain losses.

The Eurozone’s industry recorded its first annual growth in production since late 2011 yesterday, with industrial production rose 0.3% between June 2012 and June 2013. Factory output increased within the Eurozone in the month June as well as industrial production growing by 0.7% from the previous month. The rise was driven by a 4.9% surge in the production of durable consumer goods, such as cars and computers.

After several data releases emerging from the Eurozone and the US we saw the Euro extend its losses against the greenback reaching an 8 day low.

Earlier this morning we saw German and French Q2 GDP figures released (y/y) with consensus in Germany expected at a 2.1% improvement from a previous -1.4% to 0.7%. Where in France the increase is expected to be smaller at 0.3%, which will be followed by the Eurozone GDP (y/y) released later this morning.

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Written by Tom Tong

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