UK inflation turns positive as markets await crucial central bank minutes

Enrique Díaz-Álvarez17/Jun/2015Currency Updates


Encouraging, albeit slightly below forecast inflation figures, coupled with increased uncertainty in Greece, caused the Pound to end trading higher against its peers, up 0.2% versus the Dollar.

Inflation in the UK retuned back into positive territory in May, having dipped into negative in April for the first time in over fifty years. The Consumer Price Index rose by 0.1% in the twelve months to May, up by 0.2% on the month and mostly in line with market expectations. Upward pressure on prices last month came from a bounce back in air fares and an increase in fuel prices following the recent stabilisation in global oil prices. Slightly disappointingly, the core measure of price growth rose 0.9% on an annualised basis, marginally shy of expectations. In the same report, the ONS announced that growth in house prices showed its largest slowdown in ten years, most likely in part to the uncertainty surrounding last month’s general election. House prices rose by 5.5% in April, a substantial slowdown from the 9.6% annualised increase in March.

A very busy and potentially crucial day in the world markets tomorrow will kick-off in the UK with the release of the Bank of England minutes from its latest monetary policy meeting. This will include the vote on interest rates which, despite some hawkish words from MPC member Ian McCafferty last week, is expected to remain unanimously against any change. In tandem, we’ll see wages and unemployment figures from the ONS, all at 9.30am this morning.


Another day with no deal in Greece caused the Euro to end 0.6% lower against the Dollar.

In terms of economic data, which seems to be taking a backseat in the Eurozone at the moment, the ZEW economic sentiment survey disappointed expectations across the board. The monthly investor confidence survey fell for the Eurozone in June, down from 61.2 to 53.7, adding concerns to economic prospects. This was driven by a disappointing result in German sentiment, which fell 10 index points to 31.5, its lowest reading since November last year.

Over in Greece, Prime Minister Alexis Tsipras reiterated the Greek government would not be able to meet its debt obligation to the IMF without a deal with its creditors. In a defiant speech, Tsipras remained confident of a deal, although claimed proposals by creditors so far were “absurd and unrealistic” and would lead to a “vortex of recession and uncertainty”.

The ECB’s non-monetary policy meeting this morning will be mostly overshadowed by goings on in Greece. In terms of data, at 10am BST Eurostat will be announcing revised inflation figures and construction output, likely to cause no more than moderate Euro volatility.


Greenback ended higher against its major peers following Greece concerns weighing on the Euro. The US Dollar index declined by 0.5% on Tuesday.

Tuesdays trading was mostly quiet in the US as focus shifted to today’s pivotal FOMC statement. There were, however, a couple of housing data releases. US home construction cooled in May, with the monthly housing starts measure from the US Census Bureau showing that the number of new homes constructed dipped slightly from a revised 1.165 million to 1.036 million. Despite this moderate slowdown, the housing market did show some encouraging signs. Applications for new housing permits surged by 11.8% in May to just under 1.3 million, well above estimates. This suggests that the recent rebound could recommence soon, with home builders still catching up after the recent poor weather.

After markets close in the UK the Federal Reserve will be announcing its interest rate decision, followed by the customary statement and press conference from Janet Yellen. While we do not expect any change to the benchmark rate this evening, clues as to the exact timing of a rate take-off are pivotal. Perceived hawkishness in the form of a signal suggesting a July or September increase would no doubt lead to a Dollar rally, while the release of the famous “dot plot” could also give a firm indication that the period of stable monetary policy could soon be at an end.


Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.