It was a fairly quiet day on financial markets yesterday as traders geared up for the main event later on in the week – the Federal Reserve’s long-awaited September interest rate decision.

However, there is one piece of key British data due for release today and that’s August’s CPI report. The majority of market players expect the headline inflation rate to slow from 0.1% to 0.0%, which could soften demand for the Pound as it would likely be seen as a sign that inflation prospects are not strong enough to warrant an interest rate hike from the Bank of England anytime soon. Some traders are braced for a negative CPI print, which of course would prove even more damaging to the Pound. However, if we are treated to a shock rise in consumer prices then Sterling could surge because recent comments from Bank of England officials have suggested that the MPC expects wage growth to translate into price growth over the next 6-12 months.

Euro

Sterling managed to eke out minimal daily gains against the Euro yesterday ahead of this morning’s data set, which as well as the UK CPI report includes a potentially significant German ZEW survey.

Analysts anticipate that investor confidence in Germany shrank from 25.0 to 18.3 at the start of the month, which is liable to weigh on demand for the single currency. Germany’s exuberant export sector is susceptible to the recent slowdown in China and it is likely that the devaluation of the Yuan and subsequent equity market crash is having a negative impact on business confidence in Germany. If German output begins to slow it is liable to put even more pressure on economists at the European Central Bank to bolster their already expansive asset purchasing programme.

Data yesterday showed that Eurozone industrial output rose from 1.5% to 1.9% during July but the better-than-expected performance took place before the Chinese slump and therefore only gave the single currency a minimal boost.

US Dollar

‘Cable’ grappled with technical resistance yesterday and failed to register any lasting gains ahead of today’s UK CPI report. If the British inflation numbers impress we could see GBP/USD rally but the more likely outcome is that we will see Sterling dip on a weak result.

Data this afternoon is tipped to show that US retail sales growth halved from 0.6% to 0.3%, which is unlikely to do Federal Reserve September rate hike bets the world of good. Downbeat US industrial and manufacturing production scores are also expected to weigh on US Dollar sentiment this afternoon. If the day’s ecostats surprise to the upside it could create an interesting dynamic as traders mull over the likelihood of a Fed interest rate hike on Thursday. The consensus view still points towards rates remaining low until later on in the year.

Canadian Dollar

The Canadian Dollar gave back its morning gains against the Pound yesterday afternoon as the value of crude oil continued to depreciate.

Last week oil took a beating as Goldman Sachs commented that prices could plummet to as low as $20 per barrel over the next year or so if production continues to outweigh supply. Crude is currently trading just below $50 per barrel – which is already -50% down on where it was this time last year.

However, there is hope for the ‘Loonie’ this week; if the Fed leaves rates on hold and strikes a dovish tone then the risk-correlated Canadian currency is liable to surge higher across the board.

Australian Dollar

The Pound ceded around -200 pips to the Australian Dollar yesterday as markets pulled out of Sterling positions ahead of this morning’s UK CPI report.

The big news out of Australia was that Prime Minister Tony Abbott was ousted by former cabinet minister Malcolm Turnbull. Turnbull mounted a hasty coup on Monday after claiming former PM Abbott wasn’t providing ‘effective economic leadership’. The announcement sent the ‘Aussie’ Dollar higher in a knee-jerk response as traders bet that the more moderate Turnbull might be able to turn things around in Australia, where declining commodity prices and softening demand from China are threatening to bring about a domestic recession.

New Zealand Dollar

The Pound to New Zealand Dollar exchange rate ticked lower by over half a cent yesterday as UK inflation prospects weighed on demand for Sterling. The ‘Kiwi’ was also boosted by hopes that this afternoon’s dairy auction will lead to another rise in milk prices. Dairy is New Zealand’s largest export and as such the ‘Kiwi’ Dollar is susceptible to fluctuations in line with the value of dairy and milk.

Data Released

09:30 GBP Consumer Price Index (YoY) (AUG) High 0.0%
10:00 EUR German ZEW Survey (Economic Sentiment) (SEP) High 18.3
13:30 USD Advance Retail Sales (AUG) High 0.3%
14:15 USD Industrial Production (AUG) Medium -0.2%