Surprise UK Inflation Acceleration Fails to Push Pound Higher

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  • Chinese Free Trade Comments Ease Global Trade Jitters – Australian Dollar strengthens on hopes of de-escalation in US-China trade spat
  • GBP Exchange Rates Slump in Spite of Higher UK Inflation Rate – Theresa May rejects latest EU proposals for Irish border
  • Weakening Consumer Confidence Fails to Knock New Zealand Dollar Uptrend – Risk appetite limits NZD vulnerability
  • US Dollar Sees Limited Support on Mixed Housing Market Data – US economy continues to send mixed signals

Chinese Trade Comments Boost Australian Dollar

A modest uptick in August’s Westpac leading index helped to keep AUD exchange rates on a stronger footing yesterday. The appeal of the commodity-correlated Australian Dollar also improved in response to comments from Chinese Premier Li Keqiang, who called for greater support for free trade and multilateralism. This boosted market hopes that the US-China trade spat may not continue to escalate in spite of recent tariffs, encouraging a greater sense of market risk appetite.

In the absence of fresh domestic data today, though, the Australian Dollar looks vulnerable to any deterioration in investor sentiment.

Rising Inflation Fails to Shore up Pound Sterling

Although the headline UK consumer price index surprised investors with an acceleration from 2.5% to 2.7% on the year this failed to offer the Pound much in the way of support. While this could encourage the Bank of England (BoE) to take a more hawkish outlook on interest rates the negative impact on wage growth proved a greater concern. Demand for Sterling also eased in the wake of reports that Theresa May has rejected the latest EU proposals to resolve the Irish border issue, raising fresh worries over the progress of Brexit negotiations.

A slowdown in UK retail sales in August could put further pressure on GBP exchange rates this evening, with consumer spending looking set to decline in the months ahead.

Euro Muted as Eurozone Construction Output Eases

July’s Eurozone construction output data offered the Euro little in the way of encouragement yesterday, with the sector still showing signs of slowing growth. This limited the potential for EUR exchange rate gains even as global trade tensions began to ease a little. Commentary from European Central Bank (ECB) President Mario Draghi failed to provoke any particular volatility, meanwhile, as he gave no particular indications on monetary policy.

If the finalised Eurozone consumer confidence index shows a downward revision the Euro could fall further out of favour with investors.

US Dollar Recovers Some Ground Despite Mixed US Housing Data

The US Dollar found some support overnight in spite of the mixed nature of August’s US housing data. While building permits saw a sharp contraction on the month this was contrasted by an unexpectedly strong rebound in housing starts. All in all, this highlighted the more volatile nature of the domestic housing market. A better-than-forecast narrowing of the second quarter current account deficit also helped the US Dollar to recover ground against some of its rivals.

As forecasts point towards an improvement in the Philadelphia Fed business outlook index this could give USD exchange rates a stronger boost tonight.

Disappointing Oil Inventories Figure Limits Canadian Dollar Demand

As US crude oil inventories saw a smaller drawdown than anticipated in the last week this diminished support for the Canadian Dollar. Investors were less inclined to favour the commodity-correlated CAD as doubts over the outlook of the oil industry linger, with production still ramping up in many OPEC nations. Persistent doubts over the outcome of NAFTA renegotiations added to the bearish bias of CAD exchange rates.

If August’s ADP payrolls report indicates that the Canadian labour market is failing to tighten the Canadian Dollar may shed further ground.

NZD Exchange Rates Shrug Off Weakening Consumer Confidence

New Zealand data generally failed to impress yesterday as the third quarter Westpac consumer confidence index slipped from 108.6 to 103.5. This suggests that domestic sentiment is continuing to decline, something which is likely to weigh on economic growth moving forward. However, as the general sense of market risk appetite remained elevated this helped to limit any detrimental impact on the New Zealand Dollar.

A weaker second quarter gross domestic product reading, though, could still see NZD exchange rates trending lower this morning.

Data Released

September 20th 08:45 NZD Gross Domestic Product (YoY) (2Q) 2.5%
September 20th 18:30 GBP Retail Sales Ex Auto Fuel (YoY) (AUG) 2.3%
September 20th 22:30 CAD ADP Employment Change (AUG) 
September 20th 22:30 USD Philadelphia Fed Business Outlook (SEP) 15.8
September 21st 00:00 EUR Eurozone Consumer Confidence (SEP A) -2.0

Post by TorFX

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