JPY Domestic CGPI in line, consumer confidence down - EUR Wholesale prices higher than expected
- GBP CPI jumps - USD Trade Balance on tap
In what seemed to be a quiet, thinly traded session, GBP/USD jumped nearly 70 points to 1.8741 upon release of UK inflation figures, lending scope to the Bank of England to consider hiking to 5.00% before year end.
Headline CPI rose 0.4% in the month of August against expectations of a 0.3% rise, which brought the annual rate to 2.5%, well above the BOE's 2% target. The core measure of inflation, however, came in at a more moderate annual rate of 1.1%, leaving no question that price increases in the past year have been a result of soaring energy costs and other volatile factors.
Nevertheless, the gain in the headline figure is just what the BOE needs to prove that, not only was their preemptive hike to 4.75% in August warranted, but that further tightening may be required amidst house price acceleration and wage growth.
Flight to safety took effect this morning on news that the US State Department confirmed a foiled terrorist attack on a US embassy in Damascus, Syria, leaving the gunmen dead. The greenback held firm against the euro, while the economic news of the morning out of Europe would normally have given pair a boost, as the German wholesale price index gained a solid 0.6% in the month of August versus a predicted reading of 0.0%.
The rise highlights the inflation concerns of ECB member Nicholas Garganas, who said that the central bank is "very worried" about the inflation outlook. Additionally, Japanese data showed that domestic CGPI, export, and import prices all increased in line with expectations. However, USD/JPY was little changed in a 30 point range as the inflationary figures were not enough to offset yesterday's drop in machinery orders, which came as an extremely negative surprise to the markets.
The focus in the US session today will be on the trade balance, which is anticipated to post an even wider deficit of $65.5B. With almost every other US indicator set to be released this week with disappointing results, dollar bulls will likely be hoping for a surprise narrowing.