Sterling lower after UK inflation data
The euro remains under pressure against the dollar ahead of tomorrow’s ECB interest rate decision, trading at a circa two-month low of $1.0880 this morning. It is firmer against sterling though, at about £0.8380, following softer than expected UK CPI data released a short while ago, which showed inflation falling below the 2% target in September. The pound has also lost ground to the dollar, slipping to just under $1.30.
UK bond yields have fallen quite a bit on the back of the inflation data – which not surprisingly has seen Bank of England (BoE) rate cut expectations harden – with 2- and 10-year yields about 10bps and 6bps lower at the start of play today. Yields generally are heading further south this morning, having declined yesterday amid a fall in oil prices and soft regional manufacturing data in the US. Meanwhile, equity markets gave up some of their recent gains yesterday, despite lower bond yields, with European stocks off almost 2% and US indices shedding just under 1%.
This morning’s CPI data in the UK showed the annual rate of headline inflation fell to 1.7% in September from 2.2% in August, below the consensus forecast of 1.9% and the lowest reading since April 2021. Falling energy inflation contributed to the decline in overall inflation, but core inflation – which excludes energy as well as food prices – also fell last month, coming in at 3.2% (from 3.6% in August) with goods inflation dipping to 0.2% and services inflation – which the BoE is closely watching – decelerating to a 28-month low of 4.9% from 5.6% in August. The data probably copper-fasten a cut in interest rates at next month’s BoE meeting.
Upstream inflation in the UK also eased in September according to the latest producer prices report published this morning as well, with producer input and output prices falling by 2.3% and 0.7% year-on-year respectively last month (from -1.0% and +0.3% y-o-y in August).
It is a relatively quiet day ahead in terms of economic data, with only import and export prices due in the US.