Morning Report: 15 February 2017

15th February 2017 By: Ranko Berich

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GBP. Sterling took a hit yesterday, with January’s inflation reading being marginally below market forecasts. Despite this, the Consumer Price Index reading of 1.8% year on year still represents the highest annual rate of inflation since 2014. Core CPI, which excludes fuel, rose 1.6%, holding in line with December’s reading, while Producer Input prices recorded another strong monthly increase. Overall, although the data supported the Bank of England’s current relatively sanguine attitude towards inflation, it remained robust enough that yesterday’s weakness in the pound is likely to be short-lived. This morning’s data has included weaker than expected growth in the Average Earnings Index, which rose 2.6% year on year in January, while the Unemployment Rate remained at 4.8%.

EUR. The euro continued to weaken against USD yesterday amongst a raft of disappointing economic indicators, although the single currency did manage to recoup some ground against sterling. Eurozone Gross Domestic Product Growth fell short of expectations, rising 0.4%, while Industrial Production contracted by more than expected. Italian and German GDP both also missed expectations, while the important ZEW Economic Sentiment survey showed worse than expected investor confidence in both German and the eurozone as a whole. The data reversed what had been a recent string of positive eurozone releases. Today at 10:00 GMT the Eurozone’s Trade Balance will be released.

USD. Yesterday’s testimony by Federal Reserve Chair Janet Yellen did not prove to be a game changer for USD, which did enjoy a good burst of strength yesterday, notably against GBP and EUR, but has since come under pressure against many of the G10 currencies, especially NZD and AUD. Yellen’s testimony to the Senate Banking Committee echoed the cautiously hawkish tone of most recent Fed communication. Using similar language to her colleagues, Yellen stated that the Fed would be gradually removing monetary accommodation throughout this year if economic data continued to indicate a tightening labour market, and improving inflation outlook. Yellen steered clear of commenting on the specific implications of fiscal policy for the economy and rates, possibly because the Trump administration has yet to announce any specifics of its fiscal policy. Today at 13:30 GMT Consumer Price Index data will be released alongside monthly Retail Sales, followed by Capacity Utilisation and Industrial Production at 14:15. Yellen will go another round with lawmakers, this time from the House Financial Services Committee, at 15:00.

CAD. After a strong start to the session yesterday and some fresh highs against USD, the loonie reversed strongly and weakened yesterday afternoon. USD strength in the wake of Fed Chair Yellen’s testimony caused the reversal, although CAD quickly found its legs and is currently trading at levels comparably to yesterday’s open. Today at 13:30 GMT monthly Manufacturing sales data will be released, followed at 15:30 by weekly north American Crude Oil Inventories.

UK news

Guardian: Inflation could push 4m more Britons below poverty line, study finds. At least 4 million people are at risk of falling below the poverty line because of rising food and fuel prices, a new study from the Joseph Rowntree Foundation has warned. The cost of living could rise by up to 10% by 2020, increasing pressure on household budgets, the foundation said, with the impact worsened by a freeze on tax credits and working age benefits.

REUTERS: British EU residents concerned about Brexit’s impact – survey. Most British expatriates in the European Union are worried that Brexit will limit their rights in their country of residence, according to a survey published on Wednesday. About 83 percent of respondents said they were “very concerned” about the impact Britain’s departure from the EU could have on them, while only 3.8 percent answered “not at all”.