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Global Exchange

Exchange Rates for Friday 25th July 2014

UK inflation rises and helps Sterling to a sold performance yesterday

Yesterday's key UK data reported headline CPI (consumer price index) inflation rose to 2.6% in July from 2.4% in June, above market forecasts. Though inflation edged up, a pinch of salt is required due to the variations caused by summer sales and significant inflation undershoots in recent months. Overall, the rate of inflation is within the Bank of England's 2%-3% target range and therefore not an obstacle should the monetary policy committee wish to expand its quantitative easing process.

The CPI new was on Sterling's side yesterday, as was the provisional figure for Eurozone gross domestic product. Prior to the Eurozone figure, data from France and Germany had raised expectations that the Eurozone might avoid negative growth in Q2 but it was not to be: the figure came in at -0.2%, which was bang on forecast. As it turned out, it was a situation in which a statistic is expected to be better than expected and becomes a disappointment when it fails to meet the unwarranted optimism.

It is also worth mentioning that Spanish banks borrowed a record amount from the ECB in July. Bank of Spain data indicated that net ECB borrowing rose to €375 billion from € 337 billion in June. It was the 10th straight month of increases, highlighting how the country's lenders are having more and more difficulty financing themselves through private investors.

Overall, the Euro went lower yesterday although not by much and not against everything. It ended the day losing half a cent to the US Dollar and a quarter of a cent to Sterling.

There is a holiday today in Europe leaving just UK and US data on today's agenda although we have already had this morning Australian consumer confidence which fell by -2.5% to 96.6.

At half past nine the Office for National Statistics releases the UK employment data for June/July, which are expected to show unemployment steady at 8.1%. At the same time the Bank of England publishes the August MPC minutes.

This afternoon there is a plethora of US figures; CPI inflation, international investment flows, industrial production, capacity utilisation, the New York Fed's manufacturing index and the NAHB housing market index. There is plenty to keep investors interested with Sterling's fate in the hands of the MPC. Have a good day.
 

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