Sterling strengthens despite CPI decrease

Claire Hogarth17/Sep/2014Currency Updates

GBP

Sterling initially depreciated 0.2% against the dollar yesterday as the currency dipped towards its weakest level in 10 months before sliding for a third day against the euro, falling by 0.3%.

This came on the back of the ONS releasing its CPI data for August which showed consumer price growth fell from 1.6% to 1.5%, its lowest level in five years excluding May. These weaker than expected figures, coupled with the increasing uncertainty of the Scottish referendum, caused GBP to drop versus all but two of its 16 major peers as the markets opened. The pound did, however, recover as the day went on against the dollar and the euro in the lead up to this month’s MPC meeting and as a consequence of three new referendum polls showing a slender 52% to 48% lead for No. GBP reached its highest level against both currencies in the past seven days although it is still considerably down on the USD for this year.

The main focus for the UK today is the Bank of England releasing its MPC minutes for September and the outcome of its vote on the interest rate level. Last month saw the first split interest rate decision in three years and with this expected to be the case today, speculation will be rife surrounding the timing of the inevitable rate hike. The fall in CPI may ease pressure on the BoE however.

EUR

The euro fell against its peers as Economic Sentiment, a survey of economists with the aim of measuring market confidence, declined sharply in Germany in September according to data published yesterday by the ZEW Centre for Economic Research. Continued concerns over the Ukraine crisis and Thursday’s Scottish Referendum have caused economic sentiment to fall by 1.7 points to 6.9 in September from the preceding month’s value of 8.6. The ZEW index for the rest of the Eurozone showed that sentiment fell from 23.7 to 14.2, a drop was far worse than analyst forecasts were expecting.

Eurostat will at 10:00am today be releasing the Consumer Price Index for the Eurozone for August. The consensus is that this figure will decline by 0.1% from July’s figure of 0.4%, putting further negative pressure on the already weakened single currency.

USD

A quiet day for the dollar as traders await with caution the results of the two day Fed meeting which begins today. Speculation continues that the Fed will change its stance on keeping rates low for a “considerable time”. The USD did, however, trade at almost a six year high versus the yen, rising by 0.1% and has appreciated 3.5% in the past month, making it the best performer among the ten most developed nation currencies.

At 1:30pm today the US Bureau of Labor Statistics will release its consumer price index for August. The consensus is that this reading will be lower than the previous month which could potentially have a negative impact on the strength of the greenback. In addition to this the Federal Reserve will release its projections for inflation and economic growth over the next two year in the FOMC Economic Projections report.

Rest of the world

Israel’s Finance Ministry has cut its growth forecast with the nation’s inflation rate unexpectedly falling to zero. The war in the Gaza Strip has put pressure on domestic consumption, and the inflation rate is now at its lowest level in the country since it experienced deflation in 2007. The currency has depreciated by 7% against the USD since the beginning of August.

The Australian dollar suffered a blow by dropping to its lowest level against the USD since March. A slump in coal and iron prices caused by a decline in demand of Australia’s major trading partner, China, has greatly weakened Australia’s terms of trade and had a negative impact on the country’s currency in recent weeks.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.