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Sterling rallies then falls on inflation/Brexit.

By Jake Trask

GBP/USD pushed through 1.32 for the first time in six weeks yesterday as UK CPI unexpectedly rose to 2.7%, its highest level since February this year. Markets were expecting a fall to 2.4% from 2.5% so resulting spread between expectations and reality caused a sterling rally and brought forward the chances of an interest rate rise from the Bank of England. A rate hike from the Bank will likely hinge on whether the UK and EU can come to some sort of trade arrangement by November and a report in The Times highlighting ongoing divisions between the two sides over the Irish border put pay to the pounds rally yesterday with cable dropping back to around 1.3130 by lunchtime. Today sees the official start of an EU leaders meeting in Salzburg with pound-bulls hoping face to face talks between Theresa May and her European peers will pave the way for a trade deal later in the year. Sterling has pushed higher this morning with GBP/USD up to 1.3170. This morning’s big release is UK Retail Sales numbers for August with a drop of 0.2% from July expected however expect news emanating from Salzburg to be the main mover in sterling crosses throughout the next 36 hours.

EUR/USD and USD/JPY have been trading sideways for the past 24 hours looking for something to force a breakout of its current trading range. EUR/USD is currently heading up towards 1.1720 again where it has fallen short on a number of occasions this month. USD/JPY is stuck between 112.10 and 112.40 as markets digest the news that the Trump administration will implement (as expected) its latest slew of tariffs against China on Monday. Today’s only data of note is the monthly Philly Fed Manufacturing Index which is expected to rise to 17.5 from 11.9 however whatever the reading this will unlikely be the catalyst for a breakout.

As mentioned before EUR/USD has been hovering around the 1.17 handle for much of the past 24 hours with a lack of fundamental data leading to a tight trading range. Tomorrow sees the latest set of PMIs from Germany, France and EZ as a whole released. All the main gauges are expected to hold or recede slightly from last month so should a few print in the green then we may get a push through the 1.1720 handle finally. Aside from Bundesbank President, Jens Weidmann speaking this afternoon it’s another quiet day from the Eurozone so comments from the EU leaders get-together in Salzburg will be the main headline maker.

AUD/USD is slowly grinding higher towards .73 as markets assess what the latest round of tariffs implemented by Trump may mean for the US economy from 2019 and beyond. So far the US economy has held up remarkably well in the face of the tit for tat measures from Washington and Beijing however it appears some in the markets believe there may be a headwind for growth next year causing the Aussie and others to stabilise and recoup some of the losses incurred of late. It’s a typically quiet end to the week from Down Under with nothing of note data wise due. GBP/AUD sits at 1.8130.

Brent Crude continues to trade around the $80 handle supporting the loonie. USD/CAD has continued to fall throughout the week and is now making a play for the 1.29 handle. Tomorrow sees CPI numbers from Canada being released with a moderation from the previous month’s large rise predicted. GBP/CAD sits at 1.7020.

Overnight saw the Kiwi jump as second quarter growth from New Zealand rose 1% compared to the previous quarter. With estimates of a 0.8% rise this comfortably beat expectations and was double Q1s gain of 0.5%. The collator of the data, Stats NZ, showed growth in 15 of the 16 industries measured with the mining sector the only one seeing a fall. Some of the increase in output was attributed to favourable weather helping boost New Zealands huge dairy industry. NZD/USD is up to .6660 with GBP/NZD down to 1.98.