Good morning,

Once again the political picture in the US overshadows everything before tomorrow’s Bank of England Inflation Report

GBP: Manufacturing unable to make sterling drive higher

Despite a better than expected sentiment reading from the UK manufacturing sector that included the 2nd highest export orders level since 1992 and the lowest price pressures in a year, sterling has not been able to drive higher. Those lower price pressures i.e. the lowest rate of inflation in 12 months will be music to the ears of policymakers who want the Bank of England to shy away from interest rate hikes in the near future or at least take some of the pressure off the next few decisions.

Today’s construction number could easily follow a similar path and another weak price component will keep a lid on sterling once again. Seperately we will have to see whether the recent spotlight on the levels of debt the average UK consumer holds is having an effect on what the nation’s largest housebuilders are doing.

We’ll find out at 09.30 this morning.

USD: Could easily get worse

Yesterday, was another day that saw the USD pegged back by politics and poor data. Car sales in the US were weaker than forecast and amid 3 interest rate hikes by US authorities in the past 8 months there are fears that the US consumer may be out of its depth already. Tomorrow’s look at sentiment in the services industry may be able to flesh out these thoughts a little further.

So far it is still the firing of Trump Press Secretary Scaramucci that has most damaged the US dollar in recent sessions. While the White House may be able to conjure some stability in the coming days and weeks, it may well be a lot longer until the dollar starts to trust political news again.

While EURUSD does look toppy at these levels, we also said that at 1.15 and 1.17. There is no reason to suggest that the next round of this season’s version of The Apprentice doesn’t push EURUSD within touching distance of 1.20.

EUR: Strong and stable

European PMIs were strong in the round yesterday and helped solidify the euro at its recent highs. There is little data today from Europe and we will therefore have to wait until tomorrow to see whether the latest run of sentiment numbers from the services industries within the Eurozone are enough to push the single currency into new territory.

NZD: Down and under down under

The largest mover overnight has been the NZD, falling over 0.5% following a fall in employment for the first time in nearly 2 years. While immigration into New Zealand is high and the levels of participation in the Kiwi labour market are strong, there is little inflation pressure and wages are pretty stagnant. The RBNZ is in no rush to hike rates and this data point will have confirmed that.

Have a great day.

Jeremy Cook, Chief Economist