UK inflation offers a little hope, next up US CPI

Good morning

UK inflation this morning offered a welcome relief, coming in lower than expected with headline CPI at 2.5% and core at 3.2%, both 0.2% lower than anticipated.  GBP initially traded lower but has actually rallied a little since the release, GBPUSD now 1.2230, despite the fact that the improved numbers could give scope for BoE to cut rates when they meet next month.  GBP is a touch higher against EUR, now 1.1860 from an overnight low around 1.1840. 

The inflation numbers take a little pressure off Chancellor Reeves, who has not ruled out an emergency budget in March as she desperately tries to balance the books.  She says she is committed to borrowing rules announced in October but if the numbers don’t add up then she’ll have to take some action. 

South Korea’s ‘President’ Yoon has been arrested after authorities finally broke into his home.  Yoon says the arrest is illegal, while political opponents obviously regard his arrest as lawful.  Yoon has previously tried to declare martial law in Korea.

In the UK, Tulip Siddiq has resigned as Treasury Minister, a role in which she would be tackling corruption, however she herself is embroiled in a corruption investigation over links to her Aunt, who was ousted last year as Bangladesh’s PM amid claims her family embezzled nearly £4bn from what should have funds spent on infrastructure in Bangladesh.  USDKRW is off its recent highs, now 1,460,but still around historically high levels.

There seems to be some better news coming from Israel/Gaza, where we seem to be on the verge of a ceasefire deal although we all know that until an agreement is actually signed anything can happen.  Indeed, even if there were to be a ceasefire, it doesn’t mean peace will suddenly fall on the region.  Still, we hope for good news.

Meanwhile NATO are ramping up their efforts to protect vital undersea cables.  Several cables have been damaged in recent weeks, with Russia being the main suspect.  The ‘Baltic Sentry’ mission will see increased surveillance of ships and NATO has vowed it will be whatever it takes to ensure the safety and security of infrastructure. 

Nottingham Forest drew with Liverpool yesterday evening.  Forest had taken the lead but just couldn’t hold out as Liverpool piled on pressure in the second half.  A highly entertaining match.  Spurs take on Arsenal this evening, both teams desperate for points but for very different reasons.  Arsenal could close the gap on Liverpool at the top, while a win for Spurs will see them climb up to a heady 12th place in the league.  Arsenal are firm favourites, now is not the time to be confident of Spurs although they are equally capable of an upset as they are in losing heavily.

This afternoon brings the latest US CPI inflation numbers.  Yesterdays US PPI came in a little softer than expected but still higher than the previous readings.  We are braced for some USD volatility on the release given the uncertainty over the potential for Fed rate cuts this year.  We have plenty of Fed officials speaking after the announcement, always interesting to see what their take is.  I wouldn’t be at all surprised to see USD a little firmer heading into the CPI release.

Overnight we’ll have the latest Aussie employment numbers, AUD has seen a bit of strength in the past week or so, helped by the reports of a graduated US tariff implementation.  GBPAUD currently around 1.9700, AUDUSD on the 0.6200 level.  UK GDP is out early tomorrow morning, not the major quarterly data but still there is potential for a bit pf volatility, particularly if it comes in below the 0.2% expected.

Have a great day

-  10.00 EU industrial production

-  13.30 US CPI, NY empire state manufacturing

-  14.00 Feds Goolsbee speaks

-  15.00 Feds Kashkari speaks

-  16.00 Feds Williams speaks

-  19.00 Fed Beige book

-  00.00 AUS consumer inflation expectations

-  00.30 AUS employment

-  07.00 UK GDP, industrial production

-  07.00 German HICP

US gradual tariff talk gives GBPUSD brief respite

Good morning

A quiet day yesterday as I’d expected, I’m pleased to say that for the time being my concerns over further GBP falls have not been borne out.  GBPUSD had traded below 1.2100 briefly yesterday but is now up at 1.2240, GBPEUR is also off the lows that came in around 1.1870, now 1.1920.  This comes despite UK Gilt yields rising again and US rates ticking higher.  Starmer has confirmed his support for Reeves, finally saying she would be Chancellor until 2029.  We’ll see.

Much of the GBPUSD shift higher is down to a weaker USD, indeed there were some Trump tariff headlines overnight which suggested a gradual introduction of tariffs could be seen which has had a negative impact on USD for now.   The likes of AUD and NZD have benefitted from the comments, GBPAUD and GBPNZD trading to one month lows despite the GBP gains elsewhere, now 1.9705 and 2.1730 respectively.

USDJPY is 157.55, Yen not really taking advantage of comments from BoJ DepGov Himino who hinted at the chance of a rate rise next week.  GBPJPY currently 192.50 having been to almost 190.00 yesterday.

Owners of properties abroad should take note.  Non-EU buyers of property in Spain could face a 100% tax in a bid to deter foreign purchases and make housing more affordable.  A long way to go before this becomes law but could have a huge impact on the Spanish and indeed other EU markets.

Premier League action returns this evening, Notts Forest take on Liverpool, could be a great match and I think Forest could be worth a small wager at 4-1.  Chelsea and Man City also in action.    

US PPI inflation numbers are out this afternoon, followed by comments from Feds Schmid.  Just a few days ago he mentioned that Fed rates may already be near neutral and that any further rate cuts must be driven by data, with only gradual moves likely given the current strength of the economy.  He is also eager to shrink the Feds balance sheet.  Difficult to see how he’d be any less hawkish today. 

UK inflation is out early tomorrow, the US CPI numbers are out tomorrow afternoon.  Difficult to appreciate how important these releases are, I’m tempted to look at downside GBPUSD trades ahead of them.  Indeed as I type GBP looks like its already started to have shifted a bit lower again, may well have missed the boat by the time I’ve sent this!

Have a great day

-  08.30 BoEs Breeden speaks

-  13.30 US PPI

-  15.00 Feds Schmid speaks

-  20.05 Feds Williams speaks

-  21.00 NZ NZIER business confidence

-  03.15 ECBs Lane speaks

-  07.00 UK CPI, PPI , RPI

GBP lower and looks like more weakness to come

Good morning

A very warm welcome to 2025, indeed this morning is a touch warmer than many we’ve had since the turn of the year, the first one in a while where the garden hasn’t been completely white with snow or frost.

I know I’m a little late to get back into the swing of things this year.  I thought I’d treat myself and ease into 2025 gently.  Probably not the right time as it turns out, the first full working week of the year saw some pretty hefty moves.  Most notably we have a stronger US dollar, given an additional boost on Friday by a stronger than expected US nonfarm payroll release which has in turn led to revised forecasts of FOMC rate moves.

The push higher in the US dollar comes at the same time as board weakness in GBP, a reflection of the alarming high cost of borrowing faced by Starmer and his gang after the budget last year, indeed we have seen the highest cost of borrowing since before the global financial crisis of 2008.  UK gilt prices have collapsed, UK growth expectations have fallen and it would appear that more BoE officials are considering rate cuts.  Meanwhile Chanellor Reeves has made it clear that her fiscal rules set out in the budget are non-negotiable.  Its looking bleak for GBP.

Before the budget last October GBPUSD was trading around 1.3400.  By the end of October it was 1.2850.  Through November we hit a low around 1.2500 but December saw a rally back up to 1.2800.  By the end of the year we in the mid-1.25s and as I type GBPUSD is 1.2145.  It is fair to say that some of this move has been triggered by the stronger US dollar. 

Over the same time period EURUSD has dropped from over 1.10 to around 1.02.  But it is GBP that has suffered more, if we look at GBP against EUR we see current levels around 1.1880, the lowest for two months but perhaps more importantly nearly 200 points below levels seen just in the middle of last week. 

Whether this turns into a Truss/Kwarteng type collapse in GBP remains to be seen.  I don’t like to be a scare-mongerer, but I am very concerned about this move, I can’t really see where it will end and we are near enough key downside levels in GBPUSD and GBPEUR that, if broken, could see renewed selling and sharp declines.  Anyone thinking this can’t happen need only look to Sept 2022.

So, what else has been happening?  Obviously the LA fires are in the headlines.  I’ve been there a couple of times and know some of the areas that have been devastated, the scale of it is quite difficult to comprehend.  There are a lot of suggestions the fires were started deliberately, and there is unhappiness over California’s water management which may have adversely affected firefighting.  Strong winds are helping to fan the flames and spread the fires.  It’s not looking good. 

I had been looking forward to watching the launch of Jeff Bezos’ Blue Origin this morning, a reusable space rocket to rival Musks SpaceX.  However the launch has been postponed over some technical issues, so far we have had no confirmation of a new date.

In sport, the FA cup is in full swing, Spurs only scraped an injury time win against National League’s Tamworth in a very poor display, more disappointing as it came on the back of a brilliant performance against Liverpool in the first semi-final leg of the League Cup.  Not sure I’ve ever seen a side so capable of being so good or so bad.  Spurs next match is against Arsenal in the league. With one point from their last four league matches, we wait to see which Spurs team will turn up.  Tomorrow’s match between Liverpool and Notts Forest will be interesting, Forest have won their last five league matches and are flying high in joint second place.  Another win would stop Liverpool extending their lead at the top of the table.

That’s about all for now.  Not much in the way of economic data today.  UK and US CPI inflation numbers Wednesday, and US and UK retail sales Thursday and Friday respectively are certainly the main events this week but focus is more likely to be on how low GBP can move and how quickly it can get there.  Buy your GBP puts here…..

-  19.00 US monthly budget statement

-  23.50 Japan current account