UK Inflation Report Hearings to Drive the Pound

Earlier in the Day:

There were no material stats released through the Asian session this morning, leaving the markets to slice and dice the RBA meeting minutes from the meeting on 7^th November.

Key points from the minutes included:

• Retail price inflation had been low as competitive pressures in the retail sector continued to restrain price rises.
• Competitive pressures in the retail sector on both margins and costs were expected to continue for quite some time.
• Despite a tightening labour market, with shortage of skilled workers in some sectors, wage growth had not picked up yet and had been lower in preceding quarters than forecast a year earlier.
• Retail sales had been weaker in the September quarter.
• The outlook for consumption growth depended upon the outlook for household income growth, which remained uncertain.
• Survey measures of business conditions and expected capital expenditure over the year ahead had increased.
• Export volumes were expected to have increased in the September quarter.
• Bulk commodity prices had fallen over the preceding months due to announced cuts in Chinese steel production, while base metal prices had increased.
• The terms of trade were expected to fall over the forecast period, in line with previous forecasts
• Labour market conditions were surprisingly strong over 2017.
• The unemployment rate is forecast to decline to around 5.25% by end of 2019, though dependent upon the participation rate.
• Conditions in the established housing market had eased in all major cities, but had remained relatively strong in Melbourne.
• Growth forecasts unchanged at around 3% over the next few years.

The Aussie Dollar slipped from $0.75574 to $0.75465 upon release of the minutes, which were taken as dovish. Concerns over household income growth and the outlook for inflation continued to suggest that the RBA would be in no rush to lift rates through next year.

With the Aussie Dollar down 0.08% at $0.7544 at the time of writing, the markets will be looking to RBA Governor Lowe’s speech later this morning for further direction.

Elsewhere, a softer Dollar saw the Yen up 0.12% at ¥112.48 against the Dollar, while the Kiwi Dollar continues to struggle, down 0.09% at $0.6803 at the time of writing.

In the equity markets it was risk on, with Chinese equities rebounding from recent woes, the CSI300 up 1.63%, with the Nikkei and the Hang Seng also making strong gains through the session, supported by the positive sentiment towards tax reforms in the U.S.

The Day Ahead:

It’s another quiet day on the economic calendar, with no material stats scheduled for release out of the Eurozone. The lack of data will leave the markets focused on Germany and what lies ahead, with the Chancellor having suggested that a new election would be the preferred option over a minority government.

The EUR held up through the Asian session, gaining 0.07% to $1.1741, though we would hazard a guess that a more material decline may be on the horizon should things not go Merkel’s way. According to Monday’s poll, fresh elections would make little difference to the outcome, so whether the stale mate will continue remains to be seen.

Assuming that differences can’t be resolved amongst the three parties and Merkel stands by her words of preferring fresh elections, it will be down to German President Steinmeier to call for fresh elections.

For the Pound, focus will be on this morning’s inflation hearing reports, which will give the markets further guidance on the BoE’s policy outlook through next year, with November’s CBI Industrial trend order figures unlikely to have a material impact on the Pound.

At the time of writing, the Pound was up 0.09% at $1.3247, with today’s inflation hearing report and tomorrow’s UK Budget the key drivers, as Theresa May comes under more pressure following the resignation of Tory policy chief George Freeman.

Across the Pond, stats are limited to October’s existing home sales figures, which are unlikely to have a material impact on the Dollar through the U.S session. Focus remains on Capitol Hill, with market sentiment towards tax reforms having improved through Monday. The markets will need to be wary of any more updates from Special Counsel Mueller’s investigation team, with tomorrow’s FOMC meeting minutes also a factor to consider through today and tomorrow.

The Dollar Spot Index was down 0.11% at 93.973 at the time of writing, with any gains in the Dollar likely to be on hold through the day. It’s been a bad year for the Greenback, which is still down 8% year-to-date and there’s certainly little chance of the Dollar clawing back the losses before the year is out.