Weak EU Inflation May Affect Euro

On the FX front, the main pairs spent most of the day within narrow ranges. A larger than expected fall in German inflation in September (-0.2% vs forecast -0.1%) was also unhelpful to the euro. Weaker than anticipated price pressures increase the prospects for further policy easing by the ECB. EUR/USD fell down into the lower half of the $1.12-1.13 range.

Meanwhile, sterling retained its overall soft tone, as markets scale back UK rate hike expectations. EUR/GBP remained around 74p, its strongest level since early May. Likewise, cable (GBP/USD) traded down around the mid-point of the $1.51-1.52 range, its weakest level since May.

Risk for the Euro and Dollar

In the day ahead, flash Eurozone HICP inflation is the main release of note. The aforementioned weak German data mean the risks to the forecast for 0% are to the downside. Another weak inflation print could act as a headwind to the euro.

Meanwhile, there is some event risk for the dollar from a busy schedule of FOMC speakers, which includes Fed Chair Yellen (after the close in Europe). Overall though, markets are likely to remain cognisant of Friday’s US employment report. As such, we could see some wait-and-see behaviour on FX markets today.

British Consumer confidence and Retail sales

British consumer confidence was half of expectation for September when it came in at +3. GfK which conduct market research found that people were concerned about China effect on the global economy and the migrant crisis in Europe.

However consumer confidence is in contrast to retail spending which rose to +49 for September from +24 in August. Low inflation levels and wages growth are believed to be the contributing factors.

The Federal Reserve conundrum

An article from Bloomberg sums up the perceptions and opinions of the main decision makers within the Federal Open Market Committee. For some they are concerned by growing asset prices in areas such as property while other want to wait for the data to prove that the economic environment both internal and external is able to manage interest rate rises gradually over time. Read more

Eurozone inflation hits negative 0.1%

Over the past month, Mario Draghi has emphasised that the ECB asset purchasing programme has room for expansion if required. While the inflation figure is relatively low for the annual 2% target set by the ECB. It may become a good thing as the main reason for the decline is falling energy prices which will thus allow people spend their savings on energy on other products or services.

It will be very interesting to see how the Forex markets take this result.

Currencies this morning

EUR/USD - $1.12142        EUR/GBP - £0.73873        USD/GBP - £0.6586          USD/EUR - €0.89141 GBP/EUR - €1.35379                 GBP/USD - $1.51785       AUD/USD - $0.70309       AUD/NZD - $1.10203

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