British Pound Sterling Live on Tuesday the 17th: GBP punished by UK inflation data, Australian dollar powers higher by 1.5 pct as RBA fails to cut interest rates

Today the British pound came under renewed pressure on the back of inflation data that came in below expectations. Markets are now positioning themselves for the liklihood that the Bank of England will expand its asset purchase programme.

16:30: Wednesday should ignite sterling

Tomorrow at 9:30 we get the minute's to Mark Carney's first meeting as Governor of the Bank of England.

This will undoubtedly be the catalyst for further moves in the British pound. We would expect very little action up until then.

It would seem markets are geared for a an 'accommodative' tone to come out of the meeting (ie. talk of a weak recovery, talk of the need to keep interest rates low for longer, talk of the possibility of increasing the asset purchase programme).

Thus, for us the chance of an upside surprise (sterling rally) is high.

Either way, expect volatility in the morning session.

14:15: GBP-USD in indecision territory

It is rather hard to call direction in the pound to US dollar exchange rate at present.

Camilla Sutton at Scotiabank believes bearish momentum in GBP-USD is waning:

"Momentum has been lost and technicals are warning of a shift into buy territory. In addition, two days of doji (open and close at same level) suggests there is indecision in the market."

Mathew Weller at GFT says:

"The relevant range to watch is from resistance at 1.5200 down to support at the 1.5000 psychological support level. With rates currently directly in the middle of this range with no momentum, we are remaining on the sideline for now."

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12:20: GBP should NOT have been a sell

Stephen Gallo at BMO Capital Markets believes today's inflation data does not warrant the sterling sell-off that we have witnessed:

The very small downside miss in UK June inflation reported this morning probably didn’t warrant even a knee-jerk reaction in the GBP on the basis of fundamentals alone, but we suspect market participants continue to adjust their overall GBP exposures in front of the July minutes due for release tomorrow, which admittedly could cause some volatility.  

"In our opinion, the GBP really should not be a sell (buy) on lower (higher) inflation readings, since falling inflation, amongst other things, supports real income growth and should therefore be a benefit to a small, open economy like the UK’s. Realistically though, it’s perhaps close to impossible to force FX participants to change the nature of the way they trade economic data for a major, highly developed economy.  

"Our base-case scenario then is that further above-target CPI strength in the UK will more likely affect the medium-term value of the GBP, just as a weaker external position and relatively fast inflation rates have forced the GBP to remain surprisingly weak in 2013."

10:42: Inflation is high, but not high enough to boost GBP

Fresh woes for the British pound were sparked today when it was shown that the rate of consumer price index (CPI) inflation increased to 2.9 pct in June, up from 2.7 pct in May.

Investors had expected a reading of 3 pct - thus inflation has come in below expectations.

The feeling amongst currency traders is that this allows the new Bank of Governor the opportunity to restart the quantitative easing programme - a big negative for sterling. The euro has meanwhile been boosted by Eurozone inflation data and ZEW Survey results.

9:42: GBP deep in the red following inflation data

The British pound has moved deep into the red in the first 15 minutes following the release of today's inflation data.

• The GBP-USD is 0.3 pct in the red at 1.5055.
• The GBP-EUR is 0.34 pct lower at 1.1521.
• The GBP-AUD is 1.41 pct down at 1.6367.
• The GBP-NZD is 0.86 pct lower at 1.9179.

NB: The above quotes are taken from the wholesale spot markets, your bank will affix their own discretionary spread to the figures. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering you more currency. Please learn more here.

9:30: UK Consumer Price Index (YoY) increases 2.9 pct in June and (MoM) decreases 0.2 pct

Sterling's reaction and analysis to follow.

8:41: Watch out for Fisher

It's not just inflation on the agenda today as Lloyds Bank Research point out:

"MPC member Paul Fisher testifies on Quantitative Easing to the Treasury Select Committee. His comments will be closely watched for clues as to how he voted at the July MPC meeting, ahead of tomorrow’s minutes."

Meanwhile, Lloyds say they forecast inflation to have risen higher in June.

8:40: Inflation data unlikely to assist sterling today

UniCredit Bank:

"Slightly higher CPI data in the UK this morning are unlikely to offer sterling greater help, as investors will be paying more attention to the BoE minutes tomorrow and its more dovish rhetoric. At best, cable may thus hold gains above 1.51, with EUR-GBP close to 0.8650."

8:32: Australian dollar powers higher

The standout currency this morning is the Australian dollar which has moved higher following the release of July's RBA minutes.

Chris Weston at IG says:

"In a market searching at every turn for clues of an August cut, the minutes today have shown absolutely no rush to ease again.

"This is a market that is short AUD in a big way and positioned for an August cut; narrative that policy was appropriate for the time being, especially in light of the falls in the AUD suggests the bank is in no rush to ease again."  

8:30: Spot rates ahead of today's inflation data

The British pound sterling (Currency:GBP) is losing ground against the Australian and New Zealand dollars.

The pound to euro exchange rate is 0.08 pct in the red at 1.1552.
The pound to US dollar exchange rate is 0.12 pct higher at 1.5118.
The pound to Australian dollar rate is 0.8 pct lower at 1.6463.
The pound to New Zealand dollar is 0.32 pct lower at 1.9280.

NB: The above quotes are taken from the wholesale spot markets, your bank will affix their own discretionary spread to the figures. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering you more currency. Please learn more here.

8:17: What to look out for on the inflationary front

There are a host of inflation releases due for release today and any major surprises could shift sterling. However, the headline figures are:

@ 9:30: Core Consumer Price Index (YoY) (Jun). Consensus is for a reading of 2.3 pct. Anything higher is GBP-positive
@ 9:30: Consumer Price Index (YoY) (Jun). Consensus is for 3 pct. Again, anything above is likely to be good for sterling.
@ 9:30: Producer Price Index - Output (YoY) n.s.a (Jun). Expectations are for 1.9 pct. We would need a big surprise here to shift GBP.