Inflation in focus

GBP

Another 40-year-high for UK inflation

The Pound is up 0.50% over the past week against a basket of other major currencies. Last week, Bank of England Governor Andrew Bailey reiterated that it was the central bank’s priority to bring inflation—which printed at a fresh 40-year-high of 9.4% the day after his speech—back down to the 2% target. He stated that a 0.50% increase in interest rates was ‘among the choices on the table’ for when policymakers meet next week.

This week is largely quiet for higher-tier economic data out in the UK. However, lower-tier Confederation of British Industry Realised Sales data is due out tomorrow, and the British Retail Consortium’s year-on-year Shop Price Index for July will print on Wednesday. While neither release may offer the Pound much opportunity to move, the data can offer some insight into the economic landscape that UK consumers find themselves in. On Friday, to close the week, UK Mortgage Approvals and Mortgage Lending figures will be released for the month of June. Meanwhile, the race to be the next British Prime Minister continues for Liz Truss and Rishi Sunak this evening as the two enter their first head-to-head TV debate. While whoever inherits the role of Prime Minister may find the UK economic outlook a bleak one to behold—with the economy suffering its most significant period of stagflation since the 1970s—the two candidates have already ruffled feathers with their differing approaches to tax and economic policy.  

EUR

ECB can ‘go big’, says Lagarde

Over the past week, the Euro has struggled to sustain a move higher against the US Dollar as the Common Currency is limited by uncertainty around the efficacy of the European Central Bank’s new tool to help the effects of its monetary policy reach poorer Eurozone economies.  The tool was discussed at the ECB’s meeting on Tuesday, which resulted in a 0.50% interest rate rise—the first increase in over ten years. This new headline rate of 0% ends eight years of negative rates. The central bank had previously indicated that a 0.25% rise was on the cards, but in the end, the Governing Council thought it ‘appropriate to take a larger first step on its policy rate normalisation path than signalled at its previous meeting’. The bank acknowledged that growth in the Euro Area is slowing down, but stated the effects are being eased by continued spending among consumers. President Christine Lagarde commented the ECB is ‘capable of going big’, despite being slower than most other major central banks in its response to inflation. Following this news, Friday saw flash Manufacturing and Services Purchasing Managers’ Index releases for Germany. Although respective readings of 50.6 and 51.4 were forecast, an unexpected contraction was indicated, with both sectors printing at 49.2, just below the 50.0 benchmark that separates expansion from contraction.

This week is set to be busy for the Eurozone’s largest economy. The Ifo Business Climate reading for Germany was released this morning at 88.6, down from 92.2 last month, and this Wednesday will see GfK Consumer Confidence for August print. On Thursday, preliminary year-over-year inflation data for Germany will be released, with July’s unemployment figures due on Friday. Both Germany and the wider Euro Area will also have their latest inflation and GDP growth data released in the week's final session. 

USD

 Fed interest rate set for another 0.75% rise

The strength of the US Dollar has abated over the past week, with the currency falling 1.50% overall against a basket of other major currencies. The Dollar's fall came as manufacturing data also noted a downturn, despite expectations for a rise in July. Meanwhile, labour market data has also highlighted more people looking for work and is another factor to add to recent signs that the labour market could be starting to cool. Existing Home Sales and the flash Services Purchasing Managers’ Index data for July also dropped further than anticipated in a bleak week for economic data in the States.

This week, the US is busy with influential events and data releases. CB Consumer Confidence for July, Durable Goods Orders for June, advanced GDP Growth Rate data for Q2, final Michigan Consumer Sentiment for July, and the ISM Manufacturing Purchasing Managers’ Index for July will all print. However, the headline event will be Wednesday’s Federal Reserve interest rate decision, where policymakers are expected to announce a 0.75% increase to an overall rate of 2.50%. A press conference will follow, and any comments on the Fed’s future monetary policy path could create movement for the Buck. Finally, on Friday, the US Personal Consumption Expenditures Index and Core PCE Index will be released. As the Fed’s preferred measure of inflation, these figures will be watched closely following the Fed’s expected interest rate hike. 

AUD and NZD

Inflation in focus

The Sterling to Australian Dollar exchange rate has fallen 0.60% in the last week against a backdrop of the UK posting fresh inflation data which saw consumer prices rise 9.4% year over year in June.   Last week, while speaking at the Australian Strategic Business Forum, Reserve Bank of Australia Governor Philip Lowe noted that a ‘robust recovery has taken place and the time for ultra-low interest rates is now behind us given that inflation is high and the labour market is very tight’. The RBA has raised interest rates by 1.25% to an overall rate of 1.35% over the course of the last three months, and Lowe said that further increases would be required in the months ahead, which could help the Aussie Dollar strengthen.

Meanwhile, the Pound to New Zealand Dollar exchange rate has remained flat over the last week as the pair maintains its four-cent range since mid-April, having been trading in the region of 1.9250. The Reserve Bank of New Zealand are expected to follow the RBA with a 50 basis-point interest rate hike for their meeting in mid-August. Last week in New Zealand, dairy prices fell for another week and credit card spending was up in June compared to last year, as the global cost-of-living crisis continues. This week, Australia will print its quarterly and annual Inflation Rate reading for Q2 as well as preliminary Retail Sales data for June. In New Zealand, the ANZ Business Confidence index will be released for July, and monthly Building Permits for June will follow later in the week. 

CAD
Rising gas prices fuel high inflation

The Sterling to Canadian Dollar has gained 0.30% since last Monday, boosted in part by lower commodity prices as West Texas Intermediate (WTI) oil trades below $100 per barrel. Last Wednesday saw the year-over-year rate of consumer inflation in Canada reach 8.1% in June, up from a 7.7% increase in May. The rising cost of gas was mainly responsible, with prices driven up by supply struggling to cope with demand and wider global energy pressures caused by Russia’s invasion of Ukraine. In its report, Statistics Canada highlighted that prices rose faster than wages as the global cost-of-living crisis continues. Canadian Retail Sales for May also increased for the fifth consecutive month, marking a 2.2% rise due to higher sales at fuel stations. This week, Friday’s session will see Canada’s GDP growth figures for May released. A -0.2% reading in May, down from April’s 0.3, is predicted, and preliminary figures will also be released for June. It’s just under two months until the Bank of Canada meets for its next interest rate decision, and currently, a 0.5% rise is expected.