The Biriths currency traded to a yearly high on Tuesday’s European session as market participants are betting on a more hawkish Bank of England following stronger-than-expected UK inflation data. The US dollar extended yesterday’s impressive gains against the yen but the euro struggled.
Tuesday’s main data for the European session was the August inflation release of the UK, which revealed headline inflation advancing to a 2.9% y/y, beating expectations of 2.8% and up from July’s 2.6% rate. In addition, Core inflation was also stronger-than-expected, rising to 2.7% y/y – its highest since November 2012. Forecasts were for core CPI to rise from 2.4% to 2.5% in August.
In a further sign that the inflation upswing from the weaker pound has yet to peak, input and output prices both came in above their top estimates. The figures will likely strengthen the argument for the Bank of England hawks that interest rates need to go up. Following the release of optimistic economic releases, the cable soared to a yearly high of 1.3287 and was last seen trading around the 1.33 level. It was also up sharply against the euro and the yen, jumping to a more than one-month high against both currencies. The EURGBP breached the key 0.90 level to hit a session low of 0.8981, while against the GBPJPY hit a high of 145.94.
On the other hand, the euro was pressured again a resurfacing dollar for the second day falling as low as 1.1924 in mid session. A converging of views by ECB policymakers that the central bank is moving towards tighter monetary policy failed to lift the single currency. Several ECB officials spoke in favor of policy normalization yesterday, though comments that the process will be gradual, as well as the potential impact of a “persistent exchange rate shock” weighed on the euro.
However, the euro later ticked higher, rising to $1.1955, as ECB Vice President Vitor Constancio started speaking. Speaking in Frankfurt, Constancio defended the ECB’s unconventional policy tools and said he was confident inflation will eventually hit the target.
As for commodities, Crude oil made a comeback as prices were boosted after OPEC raised its forecasts for demand for 2018. The group also said it had cut output in August, giving the commodity a much-needed reprieve following the dip in demand seen as a result of the refineries closures in the US due to the hurricanes.
WTI crude was last trading up 0.4% on the day at $48.26 a barrel and Brent crude was 0.8% higher at $54.29 a barrel.
Going ahead, investors will direct their attention to the release of the Eurozone’s industrial production for July as well as Germany’s final consumer price inflation for August, both slated to release in a few hours. Additionally, the US monthly budget statement for August, due to release later in the day, will be on investors’ radar.
Asian equity markets opened mixed, trading remained subdued with yields falling slightly and US dollar taking a break from its recent climb.
EURUSD: Intraday bias in EUR/USD remains neutral at this point. Overall, the outlook remains bullish as long as 1.1822 support holds.
GBPUSD: GBP/USD’s rally resumed quickly after brief consolidations. Break of 1.3267 resistance also confirms resumption of the whole rise from 1.1946. Intraday bias is back on the upside for 1.3444 key resistance next.
USDCAD: Intraday bias in USD/CAD remains neutral as consolidation from 1.2061 temporary low continues.
USDCHF: With 0.9679 resistance intact, outlook stays bearish even though rebound from 0.9420 is strong. Another fall is still expected.
USDJPY: No change in USD/JPY’s outlook. While the rebound from 107.31 is strong, it’s limited below 110.66 resistance so far.