Deflation fears deepen in the Eurozone as CPI drops to five year low

Claire Hogarth17/Oct/2014Currency Updates

GBP

Cable rose for the second consecutive day on Thursday with Sterling 0.5% to the good on the US Dollar. Despite a complete lack of data coming out of the UK, weak figures from across the pond caused the greenback to crash, with Pound benefitting as a result. The UK currency is now only 0.15% down on the Dollar having regained ground following a disastrous day of trading on Tuesday.

Away from the FX markets, the FTSE 100 fell to its lowest level in fifteen months amid continuing concerns about the strength of the Eurozone economy and flagging global growth. The recent slump in equity prices forced a number of floats to be pulled as the index declined by 3% in a frantic few hours before regaining some ground to finish the day only 1% down.

With releases limited over the coming few days, thoughts among traders in the UK will already be turning to next Wednesday and the release of the Bank of England minutes where the vote on the interest rate will be announced.

EUR

The Euro ended its good run against the pound during trading yesterday, falling for the first time this week and depreciating by 0.3% versus the UK currency. Better news against the Dollar, however, as the single currency gained slightly during London trading to finish 0.15% up.

Fears of possible deflation continued to grow within the Eurozone today after the latest CPI numbers were released by Eurostat. The data for September yielded a YoY decrease from 0.4% in August to 0.3% in September, its lowest reading since November 2009. Recent consensus has been for a gradual improvement in inflation from Q4 onwards, however, with oil prices having plummeted by over 15% in the past month, the level of inflation may remain closer to zero for an extended period of time. Economists are suggesting that inflation may not pass 1% until Q4 of next year, at the very earliest.

Limited Eurozone data out today, although at 10am London time, Eurostat will be releasing the Construction Output for August.

USD

A heavy data day saw the greenback make a rapid advanced on most of its 31 major peers during early trading before gradually declining as the day went on to finish 0.2% down.

A string of data released in the States on Thursday, with employment figures yielding mixed results. Initial Jobless Claims, a measure of first time claims for state unemployment, recorded yet another decline, falling 23,000 to 264,000 and registering a low not witnessed in the past seven years. Continuing Jobless Claims, however, increased to 2.389 million, a 7,000 expansion on previous.

While Capacity Utilisation and Industrial Production improved in September by 0.6% and 1.2% respectively, the NAHB Housing Market Index came in well below expectations to kick-start a decline in the strength of the currency. The Index, which represents home sales and expectations for home buildings in the future, registered a reading of 54, its lowest level since July. To compound further misery on the Dollar, the Fed’s Manufacturing Survey fell from 22.5 last month to 20.7 in October, its lowest level since June.

The Federal Reserve Chair Yellen will be speaking at 1:30pm this afternoon, London time, while at the same time the US Census Bureau will be releasing the Housing Starts and Building Permits data for September. The greatest level of volatility, however, may be seen at the release of the Reuters Consumer Sentiment Index for October at 2.55pm London time, with a decline predicted for the first time since August.

Print

Written by Claire Hogarth

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