Sterling Plummets on Inflation Data; Exchange Rate Markets Have One Eye on Tomorrow's BoE Inflation Report: 12/11 Live Coverage
The British pound sterling (GBP) got hammered against all the majors through the course of today owing to some poor inflation data. Indeed, the declines were sharp and have caught many FX commentators off-guard. The outlook for the British pound now looks increasingly negative.
Rates at last update:
- Pound euro exchange rate: 0.73 pct lower at 1.1841.
- Pound dollar exchange rate: 0.53 pct lower at 1.5905.
- Pound Australian dollar: 0.08 pct lower at 1.7071.
- Pound New Zealand dollar: 0.2 pct lower at 1.9344.
- Pound SA Rand exchange rate: 0.14 pt lower at 16.5623.
Please Note: All quotes here are derived from the wholesale spot markets. Your bank will charge a spread at their own discretion. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please find out more here.
16:45: All eyes on employment data tomorrow
At 09:30 the ONS release the latest employment figures. Remember, employment at 7% is the first milestone that must be reached before the Bank of England considers raising interest rates.
Claimant Count Change (Sep) is forecast to have dropped by 35K, less than last month's 41k.
The ILO Unemployment rate is expected to remain at 7.7%. Any positive surprises could help a sterling recovery.
Then at 10:30 we bring you the Bank of England Quarterly Inflation Report.
We will also be broadcasting Carney's speech live. Make sure you tune in!
16:16: Expect choppy GBP trading in coming sessions
The next 24 hours will be interesting for the British pound. Shaun Osborne at TD Securities warns:
"The GBP has been under pressure on the back of lower than expected October inflation numbers for the UK. The Pavlovian reaction to a miss on inflation is for the currency to sell off, particularly given deflationary pressures in many parts of the developed world this year.
"For the UK though—where price growth has been overshooting the BoE target for quite a while—slightly lower inflation is not as concerning. We still think this is the trough for UK inflation, and we will get more detail on the BoE’s outlook in tomorrow’s Inflation Report. We also get UK employment numbers ahead of the report which means GBP is likely set for some choppy trading in coming sessions."
15:36: Technicals warn of further downside
Another warning on the weakness we are seeing in GBP/USD. This from Camilla Sutton at Scotiabank:
"All studies have shifted into sell territory and spot has broken below support, trading to a new 2‐month low. Technicals warn of further downside, with support at the 100‐day MA of 1.5677.
15:17: GBP outlook turning more bearish by the minute
There is certainly a growing sense that the GBP could be due some further selling.
Here is the latest comment from Matt Weller at GFT:
"The GBP/USD dropped sharply in today’s late Asian and early European session trade as a weak inflation report eased any pressure on the Bank of England to tighten monetary policy. From a technical perspective, the 1.5900 round handle represents a 2-month low on the pair and a confirmed daily close below this level would open the door for more weakness in GBP/USD over the rest of the week. In the short-term, we remain cautious in case bargain hunters step in to push the pair back above 1.5900, but the longer-term picture is turning more bearish by the minute."
14:54: Is GBP weakness starting to fade?
We are seeing some recoveries in a number of GBP crosses, as Kathleen Brooks at Forex.com points out, this should be expected:
"Any weakness could be short lived as on Wednesday we get the all-important Inflation Report from the Bank of England where we expect to see growth expectations revised higher, while expectations for the unemployment rate could be revised lower. This good news could limit GBP downside today and we may see some fading of any weakness, particularly around the post CPI lows around 1.5850."
14:24: Bank of England to bring forward rate hike date
The next big event on the horizon for the British pound is tomorrow's Bank of England Quarterly Inflation report.
Berenberg Bank's Chief UK Economist, Rob Wood, says the Bank will bring forward their date for an interest rate hike:
"In Wednesday’s quarterly Inflation Report, we expect the BoE to shift the date at which unemployment reaches the 7% threshold for considering a rate hike to Q4 2015 from Q2 2016."
But, sterling bulls should be warned that the underlying tone could still be dovish:
"The latest data are unlikely to dramatically change the BoE’s assessment that rates should stay on hold for a long time because the supply side is improving along with demand. The message is likely to be that the UK has a long way to go, and the UK is in the early stages of a recovery that still needs a lot of stimulus."
Such conflicting signals could make for volatile trading conditions.
12:45: More on gamma buying of GBP
More from Gallo (see rest of comment @ 12:39): "In the GBP there seems to be quite a lot of gamma buying interest around the BoE inflation report tomorrow and retail sales on Thursday. Intra-week strikes are being paid up at quite high levels, Thursday 1.5950’s paid at 12.5% for example. Overall vol levels in EUR and GBP remain quite low, we’ll need to see further spot action on the downside in those to get vols moving significantly higher."
12:43: Now EUR/GBP re-enters bullish setup territory
Ipek Ozkardeskaya at Swissquote Bank points out that the euro bulls could take back control of the EUR/GBP pairing:
"EURGBP spiked to 0.8444 (50 dma) post-UK CPI announcement. The cross is back into the bullish consolidation area; the reluctance of GBP-bulls being the main catalyzer. Trend and momentum indicators continue pointing downwards suggesting a pullback into the broader downtrend channel (top at 0.8345)."
12:39: Market nerves contribute to GBP selling
"GBP and AUD taking out some downside stops, EURGBP topside stops, and this seems to have made the options market a little nervy. Vols are quite a bit higher in some of the pairs this morning as people scramble to buy back the gamma they sold last week to get them through the holiday weekend." - Stephen Gallo at BMO Capital.
12:01: Will markets ignore Carney again?
Speculation continues to build ahead of tomorrow's Bank of England Quarterly Inflation Report and Carney Press Conference. Ipek Ozkardeskaya at Swissquote Bank tells us what to expect:
"BoE will publish the MPC’s new forecasts on November 13th and Governor Carney will give a press conference. We expect Carney to remain dovish for two main reasons.
"First, Carney should talk down the optimism on economic recovery to stand behind his forward guidance and to avoid a too-early monetary tightening to hurt the economic recovery.
"Second, the strength in GBP is likely to keep the inflationary pressures subdued in the short-run, yet UK’s exports are likely to get hurt by strong GBP in the mid-run (especially given the weakness in EZ recovery).
"But at the end of the day, the most important is the credibility of the MPC forecasts and Carney’s comments. And we suspect a rebound in GBP if markets are to refuse to comply with the Governor Carney (once again)."
10:48: Tomorrow's labour data will be key
Boris Schlossberg at BK Asset Management is another commentator who is confident on the outlook for GBP, he suggests today' sell-off could well be a knee-jerk reaction:
"Cable quickly crumbled on the news breaking through the 1.5900 barrier before finding support just ahead of the 1.5850 level.
"Although the knee jerk reaction in the market was negative towards the currency, the longer term economic implications are likely to be positive for UK. If tomorrow's labor data report shows healthy employment growth, the combination of falling prices and expanding economic activity should boost the pound and the pair could move towards the 1.6000 level once again."
10:38: Impact of today's inflation data expected to be short-lived
Andy Scott at HiFX says he reckons the negative impact of today's inflation data should not weigh on GBP for too long:
"Slower price increases should help boost consumer spending if it’s maintained as individuals won’t see the same erosion of their lacklustre earnings growth, which have seen wages falling slightly in real terms over the past few years. We’ll get an updated outlook on inflation and the economy from the Bank of England tomorrow morning which should give a clearer picture on what they feel the implications the improving economic picture means for interest rates.
"Whilst in the short term this is slightly sterling negative, it is another positive overall for the economy and the impact on sterling should be fairly short lived."
09:36: Pound plummets on inflation data
The pound has fallen heavily on the back of today's inflation data which came in well below estimates. Good for the consumer; bad for those hoping for a higher currency.
09:32: UK inflation comes in much weaker than expected
- Core Consumer Price Index (YoY) (Oct): +0.9% vs +2% expected. Last month +0.8%.
- Consumer Price Index (MoM) (Oct): +0.1% vs +0.3% expected. Last month +0.4%.
- Consumer Price Index (YoY) (Oct): +2.2% vs +2.5% expected. Last month +2.7%.
What is driving the inflation fall? Look at the below info-graphic:
08:34: Doubts as to how far Euro rally can extend
Is this relief rally in the euro to pound exchange rate a correction higher after a hefty decline, or are markets setting aside the ECB rate cut and taking EUR/GBP to previous levels?
Kathy Lien at BK Asset Management thinks the former:
"EUR/GBP was hit hard over the past 2 weeks by euro weakness and today's rebound is the strongest for the currency pair since the steep sell-off on October 31st. Unfortunately with nothing more than a relief rally behind the move, we are skeptical about how much further EUR/GBP will recover."
08:27: OCBC bearish on GBP
"Markets will look to the BOE Inflation Report tomorrow for UK-specific cues while inflation numbers scheduled for today may also sway monetary policy expectations pertaining to the BOE. In the interim, cable may continue to remain top heavy with the pair still contemplating its 55-day MA at 1.5965 while 1.6000 is expected to be an initial resistance. However, a sustained breach below would likely tip the pair back towards the 1.5900 floor." - Emmanuel Ng at OCBC Bank.
08:20: GBP struggling against EUR and USD
The sell-off against the Euro and US dollar continues this morning; GBP/USD below 1.6 and GBP/EUR about to break below 1.19 again. We are however seeing the GBP enjoy superior moves against the likes of the Australian and Canadian dollars and the SA rand.
08:10: Tuesday brings with it inflation data
Looking to Tuesday's agenda we have some inflationary data to look forward to. Inflation in the UK has been running persistently high; analysts are predicting tomorrow's Year-on-year figure for October will read at +2%, slightly down on September's 2.2%.
The monthly figure is predicted at +0.3%, down on last month's +0.4%.
Any large under-shoot in inflation will likely prove sterling-negative.