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Common Currency Sinks as Eurozone Inflation Declines, Pound Trending Strongly Today on Improved UK Unemployment Figures

Published: 16 Sep at 11 AM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, China, Greece,

Pound Sterling
Yesterday saw fresh disappointment for Sterling as the UK Consumer Price Index for August confirmed that domestic inflation had grown by 0% on the year. While this dip in growth had been forecast traders did not react positively to another indication that the nation’s economic recovery remains both fragile and limited. With a Bank of England interest rate hike seeming an increasingly distant prospect given this decided lack of inflationary improvement the Pound remained on a dovish trend against many of its rivals. However, this morning there has been a significant surge from Sterling as a result of some unexpectedly improved unemployment figures, with the rolling 3-month Unemployment Rate for July decreasing to 5.5%.

After a shortfall on the ZEW Economic Sentiment Survey on Tuesday, with investor confidence shrinking from 25 to 12.1, the single currency has been weakened further by today’s Eurozone Consumer Price Index. Equally proving worse than expectations, inflation in the currency union in the last month was shown to have decreased to 0.9% rather than holding static at 1%. As the impending Greek election on Sunday also casts a shadow over the outlook of the Euro this has prompted the common currency to downtrend strongly across the board this morning.

US Dollar
Although traders remain generally preoccupied with the outcome of Thursday’s Federal Open Market Committee (FOMC) decision on interest rates the ‘Greenback’ experienced a substantial and somewhat surprising rally on yesterday’s unimpressive raft of data. While Advance Retail Sales posted a slightly larger decline than anticipated both Industrial and Manufacturing Production in August were revealed to have experienced greater contraction than forecast. This seemed to lend more evidence to suggestions that the Fed will hold off this month, leading markets to react with a degree of relief.

Australian Dollar
The initial boost that the ‘Aussie’ had derived from the instatement of new Prime Minister Malcolm Turnbull was tempered by less than hawkish meeting minutes released by the Reserve Bank of Australia (RBA). In spite of policymakers indicating that the recent Chinese slowdown did not merit any substantial shift in monetary policy at this juncture the overall tone was considered to be more towards the dovish side. Nevertheless, the antipodean currency has been experiencing an upturn as speculation increases that the Fed will not opt to raise interest rates tomorrow.

New Zealand Dollar
Overnight the GlobalDairyTrade auction showed a third consecutive increase in the price of milk powder as it rose 16%. However, this sustained turnaround for the commodity is thought to be mostly attributable to the decreased stock offered by market-leader Fonterra and experts continue to predict that the industry will experience significant contraction over the coming year. In spite of this less than positive outlook the ‘Kiwi’ is still making some limited gains today.

Canadian Dollar
A potential decrease in US production has helped to drive up the value of oil this week, in spite of recent forecasts estimating that prices still have a long way to fall over the next twelve months. Yesterday’s month-on-month Canadian Existing Home Sales for August showed some improvement, expanding by 0.3% after contraction in July. Consequently the ‘Loonie’ is maintaining recent momentum against rivals such as the Euro today.
As of Wednesday, 16th September 2015, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.3725, GBP USD exchange rate was 1.5499, GBP AUD exchange rate was 2.154, GBP NZD exchange rate was 2.4426, GBP CAD exchange rate was 2.0414, and GBP CNY exchange rate was 9.8739.
Dominic Lee About Author: (474 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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