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- Soggy dollar greets Europeans, CPI expectations in UK doesn’t matter – Brexit is coming
Soggy dollar greets Europeans, CPI expectations in UK doesn't matter - Brexit is coming
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Loading...Traders in Europe are arriving to find a soggy dollar, led by USD/JPY. With the euro also gaining, it isn't looking like a theme of broader risk aversion. Then again, the equity collapse began with a couple of modest down days for the S&P 500 in late-January, so nothing should be taken for granted. At least commodities are holding up for now, which may save European equities from an ugly start.
It's all about the inflation release today -- in the U.K. that is. Headline CPI there is forecast to print below 3% for the first time since August.
The pound is likely to suffer again after the print. As outlined last week, the BOE marked the final hurrah for sterling for some time. A higher rate path is now priced into the currency, just in time for inflationary pressures to dissipate rapidly. Brent crude is down 12% in GBP terms from January's high. U.K. house prices just recorded their first annual decline in six years. Last week, figures revealed the largest trade deficit since September 2016. And all the problems cited last week are still valid.
Despite hawkish BOE rhetoric last week, the one-year cost of hedging against further declines in the pound against the euro has surged to the highest since November 2016. The market doesn't seem convinced by the central bank's hawkish tilt, as my fellow blogger Richard Jones pointed out earlier. The biggest moving part for sterling remains the Brexit outcome.
Source: Bloomberg Pro Terminal
Jr Trader Alexander Kumanov
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