Market Drivers for September 16, 2014
Europe and Asia
AUD: RBA Minutes
GBP: UK CPI 1.5% vs. 1.6%
EUR: GE ZEW 14.2 vs. 21.3
North America
USD: PPI 8:30 AM
CAD: Manufacturing Sales 8:30 AM
Cable drifted lower for most of the Asian and early London trade today, culminating in drop to 1.6160 after headline UK inflation data printed slightly cooler than expected suggesting that price pressures remain subdued in the UK economy.
UK CPI printed at 1.5% vs. 1.6% eyed while PPI inputs contracted sharply at -0.6% vs. 0.1%. Food and non-alcoholic drinks were the main drivers of the decline, while clothing and footwear rose slightly. Overall UK CPI data indicates inflation remains firmly in check and is exerting little pressure on the BoE to hike rates sooner rather than later.
Tomorrow, the market will get a look at the employment numbers as well as the MPC meeting notes to see if members are becoming progressively more hawkish on monetary policy. However, with inflation data showing no signs of acceleration, the BoE has the luxury of waiting, especially if the economic data begins to slow down.
Of course, all of the economic calculations will be thrown out the window if Scotland passes the referendum to secede from the UK. For now, markets continue to assume that the 'No' vote will win, but the situation remains highly fluid and is creating concern not only in London but in Madrid as well. The Spaniards are facing their own calls for sovereignty from Catalonia. (Last weekend 500,000 people demonstrated for independence). If the Scottish independence vote succeeds it will unleash much greater political instability across the Eurozone.
Meanwhile in Europe the ZEW survey printed much weaker than expected at 14.2 vs. 21.3 dropping for 9th straight month. According to ZEW's Furst the downward trend has slowed significantly but sanctions on Russia as well as the turmoil over Scottish independence are creating uncertainty among European investors that continues to weigh on sentiment.
The EUR/USD however, shrugged off the news as much of it has already been priced into the currency. The pair remains supported ahead of the 1.2850 level having consolidated at 1.2900 for nine days. There is still a chance that the pair could make fresh lows if the FOMC turns decidedly hawkish, but if the Fed remains ambiguous about its schedule to move off the zero bound level then the EUR/USD could pop above the 1.3000 figure on a relief rally.
With little data on the US economic calendar expect for PPI and TICS trading in North American session should remain subdued as the markets gear up for FOMC. In the G-20 universe no currency has been beaten up more on strong dollar expectations than the Aussie which has seen massive carry trade outflows from the unit. The pair remains hobbled, trading back to the .9000 level after RBA meeting notes reaffirmed the point that the currency is overvalued given current economic conditions. But .9000 appears to be a modicum of support for the pair and therefore any dovish statement from the Fed could spur a short covering rally in the unit.