Morning Report: 16 August 2016

16th August 2016 By: Ranko Berich

GBP Sterling has reached a fresh three year low against the euro this morning, ahead of July’s inflation report which will detail the impact of the Brexit referendum on a variety of price indices. GBPUSD has been somewhat less eventful, with the pound actually managing to rally against the greenback overnight. The Inflation Report, which will be released at 09:30 BST, will include price indices for Retail Prices, House Prices, Producer Prices, as well as the Core Consumer Price Index, which excludes the effects of energy and is considered the most stable measure of upwards price pressure. The median forecast for year on year Core Inflation from economists polled by Bloomberg is 1.4%, an unchanged reading from June.

EUR The euro is once again benefitting from sterling and USD weakness, and advanced against both these currencies yesterday. This morning’s biggest data release for the euro will be from research company ZEW, which will release its Economic Sentiment survey results for Germany and the eurozone as a whole. The Economic Sentiment indices, which will be released at 10:00 BST, are based off a large survey of institutional investors and analysts. Sentiment in the German economy is expected to improve after a negative shock to confidence in the wake of Brexit last month. The eurozone wide index is expected to remain negative.

USD The greenback sold off against the entire G10 overnight, after high profile policymaker John Williams, President of the San Francisco Federal Reserve, said that he believed the Fed’s 2% inflation target was no longer adequate and should be moved higher, to give the Fed more room to lower interest rates in future recessions. Williams also said that the economy’s natural rate of interest had fallen, implying that the Fed’s current policy was less stimulative than previously believed. Williams also called on fiscal policy to do its part in encouraging economic growth. The survey based Empire State Manufacturing Index fell into negatives yesterday, reflecting falling reported manufacturing output in the New York area. Today at 13:30 BST monthly Consumer Price Index data will be released, followed by the Industrial Production figures at 14:15.

CAD Yesterday was the loonie’s sixth consecutive day of appreciation against the US dollar, as crude oil prices remained buoyant and USD came under broad sell pressure. Today at 13:30 BST monthly Manufacturing Sales data will be released.

UK News

  • FT. Brexit pay boost for Britons likely to be outweighed by downturn. Economic downturn will cancel any increase for those in poorly paid jobs, economists warn. A fall in the level of immigration due to the Brexit vote could offer a small pay boost to native Britons in some low-paid jobs but this is likely to be offset by a far larger weakening of wage growth across the country, economists have predicted.
  • The Guardian. Sterling has slipped to a new three-year low against the euro, as traders get ready for the July inflation report.