Sterling tumbles as inflation falls

Yesterday’s markets

19th July 2017

  • AUD - Monetary Policy Meeting Minutes
  • GBP - CPI y/y: 2.6%
  • GBP - BOE Gov Carney Speaks

Sterling plummeted yesterday after the release of the highly anticipated UK CPI figure which posted worse than expected at 2.6%, down from 2.9% last month where it has been expected to remain at the four-year high. This was the first time since October that inflation has dropped. The unexpected decline was helped by the falling petrol and diesel prices. With the BOE split at the moment on whether to raise rates at next month’s meeting, the markets were closely watching the release as a higher rate could help convince the on-the-fence members to vote to raise rates next month. However, with inflation lower than expected, despite still being above the targeted 2%, the probability of a rate hike next month has dropped as the pressure has been taken off the BOE to bring it back down.

Across the pond, President Trump’s administration has suffered an important loss with pushing his health care bill through the senate. Trump is blaming this loss on the democrats in congress and a few republicans, “most republicans were loyal, terrific & worked really hard”, he commented. Trump tweeted implying there may be a possible reform of the bill. However, although Trump may feel confident, investors seem to have started to lose confidence in the President’s capabilities, which could eventually see the USD lose strength in the longer term because of this.

Today’s markets

18th July 2017

  • USD - Building Permits
  • USD - Crude Oil Inventories
  • EUR - German 30-y Bond Auction

Economic data releases are fairly light today with the only high tier data scheduled being US Building Permits. The US Building Permits release will give an indication into future construction activity, as gaining a permit is the first step towards constructing a new building. The weekly Crude Oil Inventories figure will also be released today.