Exchange Rate Outlook: UK CPI to Dictate Pound Sterling Movement

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Pound Sterling

The Pound was set to experience volatility in Tuesday’s session as investors await the publication of the latest UK inflation data. In addition, the latest Producer Price Inflation and Retail Price Index data is due for release. Some economists are forecasting that Sterling could regain last week’s losses after future traders raised their bets that the currency fell too far, too fast. Economists are still anticipating that an interest rate rise could occur in November and as such, some are predicting that the Pound could test a six-year high against the US Dollar over the coming weeks and months.

US Dollar

The US Dollar was maintaining gains against its major peers as domestic data continued to support the currency. Monday’s better-than-expected Housing Market Index rose from July’s figure of 53 to 55 in August. Economists had forecast an unchanged figure. Tuesday is likely to create volatility for the ‘Greenback’, due to the publication of the latest Inflation Rate, Chain Store Sales, Housing Starts and Building Permits data. A strong showing from each will likely lend further support to the Dollar but a weaker than forecast figure could put pressure on the currency.

The Euro

The Euro fell back towards a nine-month low against the US Dollar on Tuesday as concerns over the faltering Eurozone continued to weigh upon demand for the single currency. Last week’s data that showed that the region’s economy stagnated in the second quarter and inflation fell yet again has raised fears over a resurgence of the Euro crisis.

Australian Dollar

The ‘Aussie’ was closing in on a two-week high against the US Dollar and Pound after the Reserve Bank of Australia said that it expects interest rates to remain at record low levels for an extended period of time.

New Zealand Dollar

The New Zealand Dollar fell against several major peers on Tuesday after domestic data disappointed economists. The latest Producer Price Inflation data came in lower-than-forecast. According to Statistics New Zealand, PPI in the South Pacific nation dropped by 1% in the last quarter, confounding expectations for a rise of 0.7%. The Reserve Bank of New Zealand also revised down its inflation forecast.

Canadian Dollar

The Canadian Dollar held onto Monday’s gains after geopolitical tensions continued to ease and as the markets turn their attention to the US Federal Reserve for signs of interest rate movement in the USA. With US airstrikes inflicting casualties on the Islamic State and news that the Mosul Dam was retaken, concerns over the Iraqi situation have increased.

South African Rand

The Rand weakened against its currency counterparts after positive data out of the USA pushed the US Dollar higher at the expense of emerging market currencies. Investors will be looking to Wednesday’s domestic data for direction. The session will see the release of the latest Consumer Price Inflation figures.

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