Cable Takes it on the Chin

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Market Drivers November 15, 2016
UK CPI cooler
UK Inflation hearings offer little new
Nikkei -0.3% Dax 0.08%
Oil $44/bbl
Gold $1224/oz.

Europe and Asia:
NZD Retail Sales
EUR GDP 0.3% vs. 0.3%
GBP UK 1.2% vs. 1.4%
EUR ZEW 13.8 vs. 8.1

North America:
US Retail Sales 8:30

Cable came under steady pressure today in early London trade, falling below the 1.2400 level before finding some support as inflation reading proved to be cooler than expected.

UK CPI came in at 1.2% versus 1.4% eyed as price pressures on the consumer level remained contained. According to the ONS,”The main downward contributors to the change in the rate were prices for clothing and university tuition fees, which rose by less than they did a year ago, along with falling prices for certain games and toys, overnight hotel stays and non-alcoholic beverages.

These downward pressures were offset by rising prices for motor fuels, and by prices for furniture and furnishings, which fell by less than they did a year ago.”
Although the CPI data was muted, the PPI readings rose, with input prices doubling to 4.6% from 2.1% on a month over month basis. The BOE has made repeated warnings that the sharp decline of cable since the Brexit would result in higher inflation, but so far there has not been a pass through effect.

In testifying in front of Parliament, BOE chief Mark Carney noted that the bank now maintains a neutral stance on policy but provided few fresh details and cable was steady during his testimony holding above the 1.2400 level. Still the pair appears to have lost much of the momentum this week and maybe due for some further profit taking especially on the EURGBP cross which was up one big figure today.

In Europe the news was generally in line with GDP data coming in as expected at 0.3% and ZEW data printing at 13.8 versus 7.9. The lower euro will no doubt also help sentiment in the IFO report due later this month as exporters in the region benefit from the lower exchange rate.

The bump in the euro today may have been simply profit taking and short covering after yesterday’s severe selloff that sent the pair to test the yearly lows, but whether the bounce could last is likely to depend on today’s US Retail Sales data. The market is looking for a rise of 0.6% matching last month’s growth and any result close to consensus is likely to help the buck as it would confirm that consumer spending remains strong and the Fed is certain to tighten monetary policy in December. USD/JPY has made a very strong move over the past several days breaking well above 105.00 level and could push towards the 109.00 figure in North American session if the data proves supportive.

Boris Schlossberg
Managing Director

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