Global Themes

UK and US inflation headline today
- UK inflation hogs the morning
- Brexit bulletin
- US inflation hogs the afternoon
- Kiwi climbs after RBNZ surprise

UK Inflation

UK inflation hogs the morning
After a data-dry day yesterday, today’s economic calendar is livelier with UK inflation kicking things off at 9:30am.

The consumer price index figure is expected to show inflation rose 2% in January from 2.1% in December y/y. If the figure comes in line with forecasts, Sterling could weaken this morning as it takes the pressure off the Bank of England to raise interest rates. Sterling has recovered ground against the US Dollar, flirting with the $1.29 handle this morning having dropped to a 3-week low yesterday. Against the Euro, Sterling has slipped back below €1.14. If UK inflation data does disappoint today, GBP/EUR could extend lower, though a break below €1.13 is unlikely, unless demand for the Euro also accelerates. 

Brexit

Brexit bulletin
Prime Minister Theresa May has confirmed she will update MPs on the Brexit situation on February 26 and if no revised deal has been achieved then MPs can debate and vote on amendments once again on the 27th. MPs are still expected to debate and vote on amendments tomorrow, but it is unclear what will get brought to the table so it could be a non-event.

The BOE governor Mark Carney reiterated his concerns over a no-deal Brexit yesterday, stating the economic shock would spread out over the global economy. Mr Carney urged MPs to break this Brexit impasse to avoid a chaotic no-deal scenario, which the BOE forecast could wipe 20% off the value of the British Pound. Mr Carney has been criticised for his doom and gloom demeanour when it comes to Brexit, but one thing is for sure, the pound did suffer its biggest daily fall in history after the vote to leave the European Union in June 2016. The BOE did anticipate the pound’s decline, which still trades 15% lower against most currency rivals today than before the referendum result.

US Inflation

US inflation hogs the afternoon
Across the pond, US inflation data is due at 1:30pm and the consumer price index figure is expected to retreat from 1.9% in December to 1.6% in January.

There is certainly a greater focus on geopolitical developments across the world, but inflation is a key economic indicator when it comes to monetary policy decisions, which can often impact a currency’s value. The US Dollar strengthened across the board last year, partly thanks to the Federal Reserve (Fed) raising interest rates four times. Fed Chairman Jerome Powell has recently highlighted that as well as global growth concerns, inflation needs to pick up too before raising rates again. Therefore, if inflation does indeed soften, the chance of a US rate hike is likely to lessen and as a result, the US Dollar could weaken.

NZD

Kiwi climbs after RBNZ surprise
The New Zealand Dollar, commonly referred to as “the kiwi”, was given a boost overnight following a surprisingly less dovish Reserve Bank of New Zealand (RBNZ) monetary policy statement.

Given the more cautious tone of other central banks lately, speculators were betting on the RBNZ to follow suit. However, although the bank confirmed interest rates could go up or down in the future, long-term projections are to see a rate hike and the kiwi careered higher as a result. GBP/NZD is down over 1.3% already this morning, trading back in the NZ$1.88 neighbourhood.




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