Eurozone CPI and Trade in Focus Today

Eurozone CPI and the latest trade and geopolitical headlines are in focus today. Sterling has largely held recent gains against the dollar.

Previous Day's Market Highlights

The dollar firmed against the euro yesterday amid renewed risk aversion as trade tensions remained in focus. Sterling-dollar traded either side of 1.30 after overnight highs in the lower half of the 1.30-1.31 band. Euro-dollar fell below 1.17 towards 1.16. The pound was relatively steady against the commodity currencies, reversing a slight morning dip, and inched higher against the euro, which lost ground as the dollar gained. This brought 1.12 back in sight for sterling-euro although the rate met resistance ahead of the key level.
 
The Canadian dollar fell yesterday afternoon after Q2 GDP missed estimates. Elsewhere on the data calendar, core PCE hit 2% as forecast, supporting the argument for higher interest rates in the US.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1149 1.1248 1.0991 2.28%
GBP/USD 1.3013 1.3044 1.2666 2.90%
EUR/USD 1.1673 1.1734 1.1301 3.69%
GBP/AUD 1.7960 1.7964 1.7284 3.79%
GBP/NZD 1.9586 1.9604 1.9077 2.69%
GBP/CAD 1.6946 1.6956 1.6596 2.12%

Today's Market Highlights

The main release today is the preliminary estimate of August CPI in the Eurozone (10:00 BST). Headline inflation is forecast to hold steady at 2.1% with core inflation at a more subdued 1.1%. This would mark headline inflation’s third consecutive month at 2% or higher. Traders will be particularly looking for any signs of an acceleration in core inflation, which could lead the ECB to consider raising interest rates sooner.
 
Based on its current inflation outlook, the ECB expects to keep interest rates on hold until at least next summer. As such, a pick-up in the release could strengthen the euro, while a slowdown could weigh on the single currency; as forecast, the release may have a limited impact. A continued decline in the Unemployment Rate could also prove euro supportive.
 
A light afternoon calendar consists mainly of the Chicago Purchasing Managers’ Index (15:00), which is projected to slow and may therefore weigh on the dollar. Trade headlines, particularly regarding negotiations between the US and Canada, will remain in focus today as well.
 
Highlights next week include the UK’s PMIs, Australian GDP, the latest Bank of Canada interest rate decision, and the US’s August jobs report. Monday is a bank holiday in the US and Canada.

Today's Economic Calendar

Time Currency Release Consensus Previous
10:00am EUR Unemployment Rate (Jul) 8.2% 8.3%
10:00am EUR Prelim CPI YoY (Aug) 2.1% 2.1%
10:00am EUR Prelim Core CPI YoY (Aug) 1.1% 1.1%
2:45pm USD Chicago Purchasing Managers' index (Aug) 63.0 65.5
3:00pm USD Michigan Consumer Sentiment (Aug) 95.5 95.3

Caxton