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Pound Softer as UK Inflation turns Negative, ?Aussie? on Downturn after Chinese Imports Fall Sharply

Published: 13 Oct at 4 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, China,

Pound Sterling
Investors were disappointed when the UK Consumer Price Index for September printed below expectations to reveal negative inflation of -0.1%. As the core figure equally fell short of forecast, remaining at 1.0% rather than experiencing a minor uptick to 1.1%, this saw the Pound rapidly fall across the board. Raising doubts in the robustness of UK’s economy recovery the underwhelming result also encouraged economists to push back their estimates for the beginning of the Bank of England’s (BoE) monetary tightening, some as far as 2017.

Somewhat counterintuitively the single currency was not negatively impacted today in spite of the ZEW Economic Surveys proving more dovish than forecast. Economic Sentiment for the Eurozone fell dramatically from 12.1 in September to just 1.9 in October, indicating the damage done by the ongoing Volkswagen emissions scandal. Likely the relative buoyance of the Euro was due to its safe-haven status, as traders were worried by further evidence of contraction in the Chinese economy.

US Dollar
The ‘Greenback’ has also benefitted from the latest round of market risk aversion, with pundits returning to the currency in spite of a recent run of disappointing data. Members of the Federal Open Market Committee (FOMC), meanwhile, have been sending mixed messages at to the possibility of a 2015 Fed interest rate rise. Atlanta Federal Reserve President Dennis Lockhart remains confident of an October or December take-off while Federal Reserve governor Lael Brainard has called for rates to remain on hold.

Australian Dollar
Putting an end to the bullish run of the ‘Aussie’ this morning’s Chinese Import figure demonstrated a more severe contraction than anticipated, falling by -20.4% on the month. Given the role of China as the major export destination of Australian metals this rapidly overshadowed a more positive reading on the NAD Business Confidence Index. With an atmosphere of risk aversion returning to trading today, the antipodean currency has entered a decided slump across the board.

New Zealand Dollar
Fortunes have been slightly more mixed for the ‘Kiwi’ on Tuesday, in spite of the reliance of the New Zealand dairy industry upon Chinese demand. Slightly more insulated from this latest downturn the South Pacific currency has strengthened against its commodity-correlated rivals, while ceding ground to the less risk-exposed majors.

Canadian Dollar
Demand has also declined somewhat for the market-sensitive ‘Loonie’ today, as the oil rally of previous days has died back somewhat. As the International Energy Agency forecast that the global glut will continue throughout 2016 to maintain pressure on producers prices have slipped further, with global benchmark Brent trading down at 50.48. Nevertheless, the ‘Loonie’ has been able to capitalise on the weakness of rivals to make some limited gains.

As of Tuesday, 13th October 2015, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.3396, GBP USD exchange rate was 1.5254, GBP AUD exchange rate was 2.1139, GBP NZD exchange rate was 2.2956, GBP CAD exchange rate was 1.9867, and GBP CNY exchange rate was 9.6747.
Dominic Lee About Author: (412 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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