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FX Day Trading - 19 October 2011
UK inflation peaks at 5.2% in September
The governor hopes so anyway
MPC minutes today
As part of their country's effort to work its way out of crippling indebtedness, Greek workers are going on strike for another two days.
Bankers in Germany are helping things along by refusing to accept losses of more than 21% on their Greek government bonds. Credit agencies have tried to improve the situation by downgrading Spain's sovereign debt rating as well as a couple of dozen Italian banks.
UK-based businessman Simon Wolfson will award – apparently without a hint of irony – a £250k economics prize for the best plan "to manage the orderly exit of one or more member states" from the euro. In view of the urgency, entries must be in by the end of January.
Despite all that, the euro had a tolerable day on Tuesday, collecting half a cent against the US dollar and more than that against sterling and the Japanese yen. See also EUR/USD spread betting.
Its get-out-of-jail-free card came in the form of renewed rumours of an agreement between France and Germany to boost the European Financial Stability to €2 trillion.
Despite a subsequent Dow Jones report that the story was "totally wrong" it gained credence, encouraging FX spread betting investors to plough back into equities, oil and commodity currencies.
Sterling was in lower demand. A week after reporting a 15-year high for unemployment, the Office for National Statistics announced that CPI inflation in the year to September was 5.2%, matching the record high of three years ago. (It was not really a record high for UK inflation of course, only for the CPI series).
Commodities spread betting investors looked at the data with dismay. Whilst it is true that the Bank of England did warn that a reading above 5% was likely this year, the number served as a reminder that pounds will be worth less tomorrow than they are today.
It was hardly an incentive to buy them. Bank of England governor Mervyn King said in a speech last night that inflation is "...at, or close to, the peak, and we expect inflation now to start to fall back" but his words were of no help to the pound, especially when he followed them with the observation that "there is a risk that growth will stall".
There was not much other activity on the ecostat front yesterday. ZEW's survey of economic sentiment found confidence lower in Germany and the Eurozone but the news was overshadowed by the €2 trillion bailout story.
US producer prices were up by a fairly punchy 6.9% but, as in Britain, the likelihood of that having any impact on interest rates is zero. The NAHB housing market hit a brighter note, rising by 4 points to 18. On a scale of 0-100 that might not look brilliant but as a 28.6% improvement it sounds quite impressive.
In between the Italian industrial sales and the US inflation and housing starts figures today, the main event will be the release of the October Monetary Policy Committee minutes. We know they signed off for another £75bn of asset purchases but how tight was the voting and what else did they discuss? Crucially, is the £75bn the whole story or just a down payment?
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'EUR/USD Spreads Higher on Rumours of Franco-German Agreement over EFSF', Article by Moneycorp, last update: 19-Oct-11
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