FX markets trade in tight ranges ahead of UK and US inflation data
19/Aug/2014 • Currency Updates•
Yesterday was a pretty calm day in the markets. The most significant release came from the US housing market. The NAHB housing market index rose to 55 in August from 53 in the previous month. This beat expectations and created some mild sell pressure on the EUR/USD, but overall we saw another day of typical lacklustre August trading. Beyond foreign exchange markets, risk assets generally rose, US and European equity markets posted solid gains as geopolitical concerns tied to Ukraine eased over the weekend and US Treasuries pulled back somewhat from their recent one-year highs.
Multiple reports due from the UK and the US, at 09.30 and 13.30 UK time, should create some volatility in the market.
No news was released on Monday for the UK.
GBP increased by approximately 0.3% versus the EUR and remained flattish versus the USD. Today should be much more interesting. At 09.30 UK time there may be quite a bit of volatility in sterling as the Consumer Price Index report for July is released. The consensus is of -0.2% on a monthly basis. It will be very important to see whether the data validates the dovish expectations from the Inflation Report last week.
After last week’s disappointments, we only had one second-tier data point out of the Eurozone. The trade balance was slightly ahead of expectations. Unsurprisingly, this did not shake European markets out of their August torpor. We expect no market moving news until the release of flash estimates of Eurozone inflation later next week. In the short term, euro trading will remain driven by the massive short positioning among speculators, which as the latest IMM report shows has yet to clear out.
A gauge of confidence among home builders rose in August to the highest level in seven months, increasing two points to 55. Readings above 50 signal that builders, generally, are optimistic about sales trends. August marks the second consecutive month of above-50 readings. The consensus was 53. This bodes well for the housing market and our expectations of Q3 growth in the 3-3.5% range.
Today, important news will come across the Atlantic. The US will release their Consumer Price Indices as well as a few other relevant reports such as the building permits and housing starts, at 13.30 UK time.