UK Cost of Living Squeeze Continues on Rising Core Inflation – Pound (GBP) Exchange Rates Inch Ahead
Pound (GBP) exchange rates inched ahead on Tuesday morning, bolstered by a rise in the UK’s highly anticipated consumer price index (CPI) readings and the building case for an early interest rate rise.
British consumer price inflation remained at 3% in January 2018, unchanged from the previous period but above the market forecast of 2.9%.
A rise in the prices of recreation and culture were predominantly responsible.
More significantly, the UK’s annual core inflation rate, which excludes the prices of energy and other volatile goods, increased to a higher-than-expected 2.7%, up from December’s 2.5% and the forecast of 2.6%.
This news ticks one of the Monetary Policy Committee’s boxes for an earlier-than-expected rate hike, with the remaining factor liable to be demonstrable progress made on the Brexit transition front.
If this is achieved then it is highly likely that the Bank of England (BoE) will move for a rate hike as soon as May this year.
GBP/EUR Exchange Rate Rises amid Renewed Criticism of German Coalition Deal
The Pound Euro (GBP/EUR) exchange rate climbed on Tuesday, bolstered by the UK’s inflation readings but also supported by renewed concerns over Germany’s attempts to form a coalition government.
It would appear that Martin Schulz’s Social Democrats are no less disgruntled with the deal being made than Chancellor Angela Merkel’s Conservatives (CDU), with some voicing displeasure at Merkel for conceding the key positions of Finance Ministry, Foreign Ministry and the Ministry of Labour and Social Affairs.
This has led to anger and fresh criticism of Merkel, with many now fearing intra-party uprisings.
After the CDU meeting in Berlin last week one long-time representative complained that he saw ‘no good reason at all’ for Merkel to be giving up so many key positions, whilst Paul Ziemiak, head of the party’s youth wing asserted that he hadn’t heard a single positive comment about the negotiation results from members of the CDU.
Beyond this, it would appear that Martin Schulz stepping down as leader of the SPD has done little to douse the fires within his own party, with many still firmly against the idea of a renewed coalition with Merkel after last year’s disappointing election.
This could prove pertinent in the coming weeks as the SPD moves to vote for or against the deal, with a failure to clinch a coalition likely to send Germans back to the polls.
GBP/USD Exchange Rate Strong as Response to US Infrastructure Plan Proves Mixed
Markets are currently digesting the recent release of US President Donald Trump’s massive infrastructure plan. Its mixed response has served to limit the upward potential of the US Dollar (USD).
The plan calls for a long-awaited upgrade to the nation’s airports, roads, bridges and other public works with other significant measures to speed up the approval time of future projects.
This would commit $200bn from the federal government over a 10-year period as a means to leverage an additional $1.5tn from state and local governments.
Whilst this plan drew some applause from asset managers and bankers who have been asking for measures to unlock infrastructure spending in the US, many are sceptical that the bill will be able to make it through a polarised Congress.
The plan could indeed be scuppered by fiscal hawks within the Republican Party, with many not wanting to support another increase in the national debt and Democrats looking to deny the President a political victory.
Lacking much in the form of US Data today the markets are instead focused predominantly on the opposition to this bill, thus providing the Pound US Dollar (GBP/USD) exchange rate a small boost.
GBP/CAD Exchange Rate Climbs on Gloomy Outlook for Crude Oil Prices
The Pound Canadian Dollar (GBP/CAD) exchange rate surged on Tuesday morning, unfazed by today’s stabilisation in crude oil prices.
Looking ahead, markets are now expecting oil prices to remain stuck at low levels for an extended period of time due to the failure to curb the global supply glut – particularly in the face of an increase in the number of US shale oil producers.
Swiss-based UBS posited this in a note, stating:
‘Oil prices have not sustained the high levels seen in January and this could put a drag on the Canadian current account.’
Lacking much in the form of significant Canadian ecostats this week it is likely that the CAD exchange rate will continue to be vulnerable to fluctuations in oil prices.
GBP/AUD Exchange Rate Up Despite Rise in Australian Business Confidence
The Pound Australian Dollar (GBP/AUD) exchange rate was up on Tuesday despite a notable rise in Australia’s NAB business confidence and business conditions readings for January.
The NAB business confidence reading printed at 12, up from the previous 10, whilst business conditions rose to a whopping 19, up from the previous score of 13.
These readings painted a positive picture for the Australian economy moving into 2018, though some analysts have cautioned that severe volatility in these readings over the past four months could be largely due to changes in seasonal patterns.
GBP/NZD Exchange Rate Remains Soft – Dovish RBNZ Liable to Keep NZD Restrained
Strong New Zealand credit card spending figures yesterday may have given the New Zealand Dollar (NZD) some resilience moving into Tuesday, but with the Reserve Bank of New Zealand (RBNZ) expected to leave interest rates on hold for the foreseeable future, it seems unlikely that this will continue in the near-term.