U.K. inflation confounds Expectation
February 15th: Highlights
- Consumer prices 1.8% higher in January
- Input prices 20% higher on fuel price leap
- Monetary Policy to remain steady
Factory Prices Jump
The Bank of England shouldn’t be phased by any single month’s statistics. Any thought that this in any way changes the Monetary Policy Committee’s view of the economy is premature in the extreme! Despite this, the market sold Sterling, which dropped by 0.75% against the euro, giving back its gains from the previous day.
The Governor of the Bank of England has been less hawkish than some of his colleagues and his “steady as she goes” policy is slowly being proved appropriate.
Yesterday also saw the release of factory input price data, which was up. The price paid by industry for raw materials rose by 20.5%. As widely forecast, this was the biggest rise since 2008 and was almost totally due to an increase in fuel prices. Oil is more than 80% higher in price than it was a year ago, rising to a high of $58.50 from a low of $31.75. This has fed through in fuel costs “at the pump” where diesel is around 20% higher than a year ago. Whilst the fall in sterling since Brexit has also been a major factor in wholesale prices rising, this hasn’t fully fed through into retail or consumer prices as yet.
Today’s release of wages data will likely affirm the BoE’s stance with average earnings expected to rise by 2.8% (unchanged) and the employment rate is also forecast to remain unchanged at 4.8%
Yellen’s openness drives dollar higher
Yellen speaks again today, this time to the House of Representatives. Her sentiment won’t have changed but markets will study data before agreeing with her.
Inflation, retail sales and industrial production numbers are all due for release in the U.S. Today so traders will get an early opportunity to get confirmation of Yellen’s thinking.
Abe: “Trump agrees to leave monetary policy to ‘experts”
Trump (apparently) agreed that monetary policy is “not currency manipulation” and that he recognizes “Abenomics” is an effective overall strategy. Currency issues are “best dealt with by the finance minister and Treasury secretary of both countries,” Abe said, adding that Trump consented to the idea. That remains to be seen.
Today’s release of trade data for the Eurozone is likely to see a surplus in excess of $25bn. It is unlikely to attract President Trumps attention given the chastening remarks last week from the Bundesbank President labelling charges of currency manipulation against the Eurozone as “absurd”.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”