CPI to Drive Pound

Following a quiet day yesterday, UK CPI is in focus this morning. Brexit headlines remain key.

Previous Day's Market Highlights

Given a quiet calendar yesterday, market movement was relatively muted. Brexit uncertainties remained a downwards pressure on the pound. Sterling-euro largely traded sideways, briefly testing the 1.13 level. Sterling-dollar held below 1.39, and euro-dollar traded in the 1.22-1.23 range, breaking above that level overnight.
 
MPC Members Vlieghe and McCafferty both signalled that further interest rate rises will likely be appropriate, continuing the more hawkish tone struck by the BoE at its meeting last week, which brought forward rate hike expectations.  
 
It was a more positive day for equities, and stocks picked up in part as oil and energy shares rose.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1250 1.1512 1.1221 2.53%
GBP/USD 1.3856 1.4346 1.3742 4.21%
EUR/USD 1.2316 1.2538 1.2165 2.97%
GBP/AUD 1.7625 1.7861 1.7275 3.28%
GBP/NZD 1.9022 1.9466 1.8888 2.97%
GBP/CAD 1.7439 1.7646 1.7059 3.33%

Today's Market Highlights

The pound is in focus this morning with the release of the UK’s January CPI figures (09:30 GMT). Inflation hit a high of 3.1% in November and is expected to dip back below 3.0% to 2.9%. Since rising inflation puts pressure on the BoE to raise interest rates, a lower figure today could weaken the pound. Either way, the BoE’s recent hawkish shift will mean that this print is closely watched, and there may be volatility around the release.
 
However, the key driver for sterling at the moment is Brexit, which continues to be a downside risk following recent tough comments from Barnier and ongoing domestic political uncertainty over the strength of Theresa May’s government.
 
The Fed’s Mester speaks this afternoon (13:00 GMT) on the economic outlook and monetary policy at the Dayton Area Chamber of Commerce Government Affairs Breakfast. Barring any movement on Mester’s comments, a quiet data calendar from both the US and the Eurozone could see euro-dollar hold around current levels.

Today's Economic Calendar

Time Currency Release Consensus Previous
09:30 GBP CPI YoY (Jan) 2.9% 3.0%
09:30 GBP Core CPI YoY (Jan) 2.6% 2.5%
13:00 USD Fed's Mester Speaks
23:30 AUD Westpac Consumer Confidence (Feb) 1.8%

Caxton