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A focus on today’s data calendar, coupled with a lack of impactful domestic data from the UK, saw the pound largely trending in response to movements from its major peers yesterday.
The pound remains soft this morning in anticipation of the imminent CPI release. Sterling is trading narrowly around opening levels, with GBP/EUR trending around €1.1256 and GBP/USD at around US$1.3782. GBP/AUD is currently around AU$1.7312, GBP/NZD has pressed higher to NZ$1.8932, and GBP/CAD is stuck at C$1.7134.
Read on to see why markets may actually welcome a decline in UK inflation today…
What’s been happening?
The pound was left rudderless yesterday by an unexciting data calendar and market focus on today’s high-impact reports.
GBP/EUR drifted lower during the course of the session, while GBP/USD was able to edge higher.
Traders have largely gotten over their exuberance after Friday’s suggestion that Spain and the Netherlands were planning to work together in order to lobby other EU officials to agree to a ‘soft Brexit’.
The approach of key inflation data today also kept markets wary of the pound.
Meanwhile, positive economic data and news from the political sphere helped boost demand for the euro yesterday.
The Eurozone trade surplus widened further than forecast in November, according to the latest data, while more news surrounding the provisional coalition agreement between Angela Merkel’s Christian Democratic Union and the Social Democrats raised hopes that Germany will soon have a permanent and stable government again.
Demand for the US dollar continued to cool, with Donald Trump’s latest diplomatic controversy serving to highlight that he still holds the same protectionist stance markets had feared when he was first elected into office.
Mixed messages from Federal Reserve policymakers further diminished the appeal of USD.
What’s coming up?
It’s likely to be a volatile day for the pound, given that December’s inflation data is due for release shortly.
Economists expect that both overall and core price growth will have slowed by 10 basis points, to 3% and 2.6% respectively.
This may be welcomed by markets, given that the Bank of England (BoE) seems unlikely to raise interest rates any time soon. This means weakening price growth is the only thing likely to provide respite to consumers struggling with shrinking household budgets.
The euro will likely spend the day reacting to this morning’s German inflation data. However, as the release was a finalised version of initial estimates and merely confirmed the earlier predictions were accurate, it may not see much movement.
There is nothing hugely impactful on the US data calendar, but markets may be interested in January’s Empire State manufacturing index; with the Federal Reserve largely expect to hike interest rates in March, every piece of positive economic news – no matter how minor – could serve to lift trader’s hopes.
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