UK economy given a timely boost as inflation rises from five year low

Claire Hogarth19/Nov/2014Currency Updates

GBP

Sterling fell to its lowest level in a month against the Euro and was also 0.1% down on the Dollar during trading despite some encouraging inflation data.

The UK economy was given a timely boost on Tuesday, just one day after Prime Minister David Cameron warned of a new global economic crisis, with UK inflation rising from its five year low. The Consumer Price Index increased to an annual rate of 1.3% in October, up from 1.2% in September, although well below the 2% target. According to the Office for National Statistics the slight increase last month was predominantly due to a climb in prices in the recreation and culture sector, notably computer games and toys. The core inflation, which excludes seasonally volatile priced products, remained at 1.5%, although this was down slightly on expectations.

Second tier data released yesterday yielded mixed results. The Producer Price index remained at -0.5% last month, although was 0.3% down on expectations, while the Retail Price index stalled in October, showing no change. More encouragingly, the Core PPI rose above expectations by 0.9% YoY.

Today is a significant day in the economic calendar for the UK with the release of the Bank of England monetary policy committee minutes from the November meeting at 9:30am, including the outcome of the interest rates vote.

EUR

Some positive data releases in Europe strengthened the single currency by as much as 0.5% on the Pound and by 0.35% on the Dollar yesterday.

The Eurozone showed a rare sign of improvement on Tuesday as all the key Economic confidence indicators registered better than expected increases in November. The ZEW survey for economic sentiment in Germany ended an eleven month decline, shooting up to 11.5, having last month registered a negative value for the first time since November 2012. Similarly, the Economic sentiment index for the wider Eurozone showed an increase for the first time since May, climbing to 11.0. According to the report, the rise in confidence was attributed to recent growth figures, which suggested that the Euro area may be stabilising.

Euro volatility likely to be dependent on external releases on Wednesday with only a few smaller announcements in the Eurozone including the Current Account at 9am, followed by the Construction Output from Eurostat at 10am GMT.

USD

The US Dollar weakened versus its major counterparts, falling by 0.15% despite mostly encouraging performance from a number of minor releases.

Producer prices increased more than expected by 0.2% MoM to boost the annualised figure which showed prices increased by 1.5% YoY. This figure did, however, decrease for a third month in a row, reaching its lowest yearly increase since April. Elsewhere, the Housing Market index rose by more than expected in November from 54 to 58 with the National Association of Home Builders citing growing confidence among consumers as the reason for builder optimism.

US traders will today be focusing on the release of the Federal Reserve minutes from last month’s monetary policy meeting at 7pm London time, although there are a number of second tier announcements including Building Permits and Housing Starts data in early afternoon.

Rest of the world

The Nigerian Naira dropped to a fresh record low as the currency swung between gains and losses on the Dollar after central bank cuts failed to support the depreciating currency. Japan’s Yen declined against most of its sixteen major peers during morning trading as the Japanese Prime Minster called an early election and suspended a planned sales-tax increase. Elsewhere, Sweden’s Krona was helped by the Riksbank Governor, Stefan Ingves, after he announced the central bank was not considering currency market intervention “whatsoever”.

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Written by Claire Hogarth

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