Despite initial strength, GBP weakened throughout European session as UK CPI reached deflationary territory, while lower than expected Chinese imports weigh on commodity currencies
The notable mover today has come in the form of GBP, which initially saw strength on the back of M&A flow as SABMiller (L:SAB) agreed a preliminary deal with AB Inbev (N:BUD), before GBP went on to weaken as UK CPI printed in deflationary territory. GBP saw immediate strength on the back of the SABMiller announcement as European participants arrived at their desks, with a deal being agreed at GBP44/shr. However, shortly before the UK CPI data was released, GBP came off its highs against both EUR and USD, with EUR/GBP reaching 5 months highs on the back of the data release (Y/Y -0.1% vs. Exp. 0.0%). While EUR shrugged off weaker than expected German ZEW survey expectations (1.9 vs. Exp. 6.5) to see gains against both EUR and GBP. Also of note, today the first comments from new BoE MPC member Vlieghe, whose comments were broadly in line with the general BoE stance, although adding that GBP is `unreasonably strong`.
Elsewhere, commodity currencies continued the downbeat sentiment seen yesterday despite the trend of strength last week, with downbeat Chinese data weighing on the likes of AUD, CAD and NZD. Despite the Chinese trade balance showing higher than expected headline figure and exports, attention was paid on the imports number (-20.40% vs. Exp. -16.00%) with the considerable miss dragging commodities lower generally, as well as specifically for AUD, with Australia exporting more to China than to any other country.
Looking ahead, tomorrow may see continued focus on commodity currencies with the release of the API crude oil inventories, while GBP may again garner attention due to the release of UK employment data. Elsewhere, tomorrow also sees US retail sales and PPI final demand out of the US as well as the Fed Beige book, with comments scheduled from ECB’s Mersch and BoE’s Haldane