Morning Report: 18 September 2015

18th September 2015 By: Ranko Berich

GBP Though GBPUSD rose rapidly overnight, sterling failed to match the pace of EUR’s rise against the USD after last night’s dovish Federal Reserve meeting, and as a result, GBPEUR weakened. Retail Sales in the UK grew 0.2% month on month in August, showing once again that consumers were not reducing spending in the hopes of getting lower prices in the future, and there is little risk of a deflationary spiral. The volume of Retail Sales was estimated to have growth by 3.7% compared to August 2014, despite a 3.3% year on year fall in average store prices, including petrol stations. Today at 12:05 BST, Andy Haldane, the Bank of England’s Chief Economist, will speak in Northern Ireland.

EUR The dollar’s loss was the euro’s gain yesterday, and the euro is broadly stronger vs the G10 this morning compared to Wednesday’s open. This may be the last thing that the European Central Banks needs at the moment- if the euro continues to strengthen while commodity prices remain depressed, the eurozone is likely to experience another severe brush with deflation. No major euro data was released yesterday, meaning something as vulgar as “economic reality” had no bearing on the strength the euro was enjoying. This morning, the eurozone’s current account data for July was released, showing a larger than expected surplus, another sign of the positive effects a weak euro has had.

USD Broad dollar weakness is the theme of currency markets this morning, after the US Federal Reserve failed to raise interest rates last night while releasing a dovish Rate Statement and bearish set of economic projections. Fed Chair Janet Yellen reinforced this message in a press conference following the releases. Developments in global markets proved influential on the Fed, which worried that an economic slowdown in China may “restrain US economic activity somewhat”, while pushing inflation down. The “dot forecasts” of interest rates showed that most policymakers still expected a modest interest rate hike this year, but that three policymakers had now left this consensus and expected to hold rates until 2016. The dollar is likely to struggle in the immediate future after yesterday’s events. The US economy is now very much back in focus, especially its ability to generate price inflation and higher wages. Today at 15:00 BST, the Conference Board will release its Leading Index of economic indicators designed to predict future economic growth.

CAD The loonie has had a bumpy ride over the last 24 hours, but is now trading noticeably stronger vs USD than it was on yesterday morning. Bearish sentiment is prevailing on USD at the moment, but CAD could solidify its gains if strong Consumer Price Index data is released today at 13:30 BST. Core CPI, which excludes fuel and other volatile items, changed 0.0% month on month in July, and expectations are for August’s data to show prices beginning to increase again.