Daily Currency Update

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Germany narrowly avoids a technical recession

GBP - British Pound

Data of late for the UK has been largely overshadowed by political uncertainty and yesterday was no exception. The UK Consumer Prices Index (CPI) 12-month rate eased to 1.5% in October as compared to a reading of 1.6% expected, and worse than 1.7% recorded in the previous month. Also, monthly figures showed that the UK consumer prices fell 0.2% in October, worse than the previous month’s modest rise of 0.1% and also missed market expectations pointing to a reading of -0.1%. The CPI number was a 3 year low and the energy cap bill was largely to blame for the drop. A slide of this magnitude would usually force the BOE’s hand as they may look at raising interest rates but as the future relationship with the EU still rattles on the BOE may just need to sit on their hands. This ‘wait and see’ approach will more than likely keep the pound range bound and following yesterday’s release cable did just that. The pair moved between a 25 point range and GBP/EUR followed suit.

Attention now turns to the monthly release of Retail sales at 9.30 am. A 0.2% increase is forecast.

Key Movers

The U.S Dollar was higher overnight following the release of a favourable inflation print for the month of October in the United States. Consumer prices rose to a seven-month high of 0.4% m/m on a seasonally adjusted basis and to 1.8% y/y.

Federal Reserve Chairman Jerome Powell overnight testified before the Joint Economic Committee in Washington and hinted that rate cuts are unlikely and will keep interest rates unchanged over the coming months. Powell noted a stronger labour market and expansion of economy activity to boost the US Dollar Index (DXY) to overnight highs of 98.45.

China may well be starting to feel the true impact of the trade wars with the US as industrial production growth slowed sharply in October, rising 4.7% year-on-year, missing forecasts of 5.4%. Retail sales also slowed to fall short of expectations and investment growth hit a record low.

Australia’s employment data showed the economy lost 19,000 jobs in October, the most number of jobs lost since September 2014. The unemployment rate rose to 5.3% from 5.2% in September, as expected. AUD/USD plummeted on the news moving from 0.6840 below the 0.68 handle to 0.6795.

Early this morning all eyes were on German GDP where there was a possibility the economy is in a technical recession. Surprisingly, the release showed a 0.1% growth from the previous quarter narrowly avoiding the stamp of being in a technical recession. The release has provided some short term relief for the single currency, EUR/USD has broken above the 1.10 handle hitting a high 1.1010. The German release isn’t something that markets can jump and shout about just yet, a longer period of stagnation is still in the cards.

Later today we have US PPI release and the continuation of Powell’s testimony.

Expected Ranges

GBP/EUR: 1.1630 - 1.1675 ▼

GBP/USD: 1.2815 - 1.2860 ▼

GBP/AUD: 1.8780 - 1.8910 ▲

GBP/NZD: 1.9910 - 2.0190 ▲