Spreadex Market Update

Likely brief pause in UK inflation increase still sends sterling tumbling



After a slow start there has been more forex drama this Tuesday, a surprising UK inflation figure sparking another slide from the pound.

Coming in at 0.9%, the markets were shocked that the CPI reading not only failed to hit the 1.1% forecast, but actually arrived under the 1.0% seen in September. And while analysts were quick to state that prices are still set to rise, and rise quite sharply, the news of this inflation respite was taken as a big blow by sterling, as it makes it even more unlikely that the Bank of England will consider lifting interest rates away from their record lows any time soon.

That meant the pound slipped 0.7% against the dollar, putting the hard-fought 1.24 level in peril, while it haemorrhaged 1.1% against the under, with it now threatening to fall under 1.15. The FTSE, on the other hand, got its usual weaker currency bounce, rising 50 points to just about cross 6800, a level it has struggled to break away from for a sustained period of time in the last fortnight or so. As sterling’s slump boosted the UK index, the euro’s resurgence hampered the DAX and CAC. The former fell 0.1%, the weaker than forecast German GDP reading outweighing the better than expected ZEW economic sentiment figure; the latter, meanwhile, eked out a meagre 0.2% increase on the news of steady 0.3% Eurozone-wide growth across the third quarter.

Looking ahead to the US open and the Dow Jones currently seems like it will be unable to start the session at yet another record high, a potential 20 point climb after the bell leaving 100 points from the 18970 peak it struck yesterday. Tuesday’s stream of key data also continues this afternoon, with the latest US retail sales reading. The figure is set to remain at 0.6%, a healthy enough number that would suggest US consumers weren’t put off in the run up to the election. There is also the import prices number, expected to rise to 0.4% from 0.1% month-on-month, alongside the Empire State manufacturing index, forecast to climb to -1.5 from -6.8.

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