Sterling loses some ground
Sterling came under some pressure during the course of yesterday’s session, seemingly related to concerns around the funding (or not) of the new UK government’s planned cut in VAT on electricity bills. The pound is down at around $1.3390 and £0.8525 versus the dollar and euro respectively this morning, though slightly softer than expected (UK) inflation data released a short while ago are having little impact on the currency. Elsewhere, the euro is managing to hold above the $1.14 level against the dollar (trading at about $1.1415), albeit it threatened to break below it during yesterday’s session, while the yen has fallen to fresh multi-decade lows of over Y163 against the US currency, carrying with it the threat of official intervention to stem its decline.
US government bonds yields edged higher again yesterday, increasing by 3-5bps across the curve, providing support for the dollar, while German yields were largely unchanged. UK bonds outperformed, notwithstanding the pressure on sterling, ending slightly lower on the day. Equity markets had a positive session, even as oil prices moved back up again, with both US and European stocks gaining around 1%. Oil prices area heading further north this morning though – Brent crude is now trading above $93 per barrel, its highest level since mid-June – which may weigh on markets today.
Headline CPI inflation in the UK fell to 2.6% in June, from 2.8% in May, according to date released earlier this morning, a touch lower than the 2.7% reading expected by the consensus. Last month’s fall was due to a decline in both energy and food price inflation, while core inflation (which excludes energy and food prices) was unchanged at 2.6%, with core goods inflation remaining at 0.7% and core services inflation nudging down to 3.6%. Headline inflation is now almost half a percentage point lower than before the war in Iran (it stood at 3% in February), but it will almost certainly move up in July as an increase in domestic energy bills (announced by the regulator a while back) kicks in. There’s a good chance though that March’s reading of 3.3% will prove to be the peak in inflation.
It is extremely quiet in terms of economic data for the remainder of the day, with little or nothing of note due for release. At least there is the ECB meeting tomorrow though!