Morning Report: 28 September 2018

28th September 2018

GBP. Sterling is the only G10 currency that has made gains against the dollar when measured on a weekly basis thus far, although the pound is only marginally holding its gains. Today see’s the final reading of Q2 Gross Domestic Product figures released along with the Current Account balance for Q2. Both month end and quarter end flows may dominate trading sentiment for the pound, however. Last week saw the labour party conference, and on Sunday the Conservative kick-start their annual meeting. Further light will be shed on the growing factions within the leading party, and further Brexit comments will likely dominate headlines as the press holds May accountable.

EUR. Strong German Consumer Price Index figures for September were released yesterday, with the countries MoM inflation rate increasing 0.4% compared to the 0.1% forecast. Energy inflation was the catalyst for the boost in the headline figure, with energy prices growing 7.7% from 6.9% in August. Energy prices continue to filter through into the headline figure, but the European Central Bank will be little moved by the minor overshoot in German inflation at 2.3%. Today, the Eurozone composite measure of CPI is released at 10:00 BST along with individual measures for Italy and France.

USD. Positive surprises in both the Personal Consumption Expenditure index and Durable Goods measure spurred the dollar on against a weakening euro and G10 currency board as a whole. Core PCE, the measure of underlying inflation pressure in the US, rose to 2.1% from 2.0% suggesting that the Fed may be forced into a more hawkish cycle if domestic pressures continue. Along with this, the durable goods index which is a good measure of the consumer’s investment appetite, rose 4.5% in August. Today, August’s PCE measure is released at 13:30 BST with a 0.1% increase expected. Should this also overshoot, the Fed may be left blushing and may be forced into reassessing their terminal rate and next year’s dot plot of forecasted rate hikes.

CAD. Oil prices continued to hold a high line yesterday. This allowed currencies that generally perform well when oil prices are high, CAD and NOK, to sit at the top of the G10 currency board, but still post losses against the soaring dollar. Crude prices brushed off comments that Saudi Arabia planned to increase oil supply by some 200,000-300,000 barrels per day to compensate for the loss in Iranian supply. Today at 13:30, GDP figures for July are released with a 0.1% increase forecast.