Daily Market Brief – 20 January 2016

Sterling slumps

Quote of the day: “If you can’t convince them, confuse them!”

January 20th: Highlights

  • Sterling down across the board
  • UK Employment data
  • US Inflation data
  • CAD rate decision expects 0.25% cut
  • Safe-haven flows drive commodity currencies lower

Sterling Comment

The CPI inflation data came in at 0.2%, in-line with forecasts. This is the first time since January 2015 that this has come in above 0.1%, but is still way below the BoE target of 2% and there was little reaction in the market.

Cable may look to be relatively stable so far today but Sterling has been left licking it’s wounds after yesterday’s pounding. Speaking at Queen Mary University, BoE Governer Mark Carney suggested all bets were off for a rate hike any time soon. His comments were taken as a follow-up to last summer, when he suggested that a decision ‘would likely come into sharper relief around the turn of the year’. Yesterday he said ‘the decision proved straight-forward: now is not the time to raise interst rates’. He said that he’d need to see faster economic growth, higher pay and more core inflation before he would vote for rates to rise. Naturally, Sterling was sold off aggressively.

Cable lost over half a cent when this news initially hit the wires, around midday, and then US traders targeted the short side again in the afternoon session and another key support was taken out. Sterling sold down to a fresh multi-year low of around $1.4135.

One the calendar today, UK data is expected to show the unemployment rate at 5.2%, but short/medium-term conditions are expected to continue favouring currency repatriation, benefitting GBP-buyers.

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Global Comment

Wider market sentiment moved lower again overnight, once again driven by the oil price. The International Energy Agency warned of a supply glut from the re-introduction of Iranian supplies to the market. Asian equities were down and the Nikkei down around 3.7% and European stocks are down this morning.

Currency trading continues to run on similar lines. Risk aversion drives support and strength to the euro and the yen, whilst weakening the commodity currencies in parallel. The CAD was driven lower still by the expectation that the BoC will cut rates by 0.25% when they meet later today.

Eurozone inflation rose 0.2% in December – the highest reading since July. Just like the UK, this is way below the ECB target, but unlike the UK, it was taken as a positive reading as it may have a trickle-down effect on the ECB decision to increase the QE programme.

IMF cut global growth forecast for this year to 3.4% (from 3.6%), citing risks relating to the emerging markets and the slowdown in China.

Traders will be hoping for some positive data to help shift the current sentiment. We have US inflation data, expected to pick-up to +0.8% (+0.5% last month), Building Permits (1.2m exp) and Housing Starts (1.2m exp).

Have a great day!

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Paul Plewman

Paul Plewman
Director of Sales & Operations
t: +44 (0) 20 7096 1036
e: paul@currencytransfer.com

Paul Plewman, Director of Sales & Operations, has over 10-yrs experience in International Payments before joining the CurrencyTransfer.com team. Follow Paul on Twitter @fxplew

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