Forex Today: Pound Sterling drops on soft UK inflation data
Here is what you need to know on Wednesday, October 22:
Pound Sterling (GBP) weakens against its major rivals early Wednesday as markets assess softer-than-expected inflation data from the UK. The economic calendar will not offer any data releases that could significantly influence major pairs' action midweek. Hence, investors will remain focused on headlines surrounding the US-China relations and the ongoing government shutdown.
The UK's Office for National Statistics (ONS) reported in the European morning on Wednesday that the annual inflation, as measured by the change in the Consumer Price Index (CPI), held steady at 3.8% in September. This reading came in below the market forecast of 4%. On a monthly basis, the CPI was unchanged after rising 0.3% in August. GBP/USD stays under modest bearish pressure after the CPI data and trades in negative territory below 1.3350. Reflecting the broad-based GBP weakness, EUR/GBP was last seen rising nearly 0.4% on the day at 0.8710.
Pound Sterling Price Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.11% | 0.31% | -0.12% | -0.18% | -0.31% | -0.32% | -0.14% | |
| EUR | 0.11% | 0.41% | -0.05% | -0.07% | -0.20% | -0.19% | -0.03% | |
| GBP | -0.31% | -0.41% | -0.42% | -0.47% | -0.60% | -0.59% | -0.44% | |
| JPY | 0.12% | 0.05% | 0.42% | -0.04% | -0.16% | -0.15% | 0.02% | |
| CAD | 0.18% | 0.07% | 0.47% | 0.04% | -0.14% | -0.12% | 0.04% | |
| AUD | 0.31% | 0.20% | 0.60% | 0.16% | 0.14% | 0.00% | 0.17% | |
| NZD | 0.32% | 0.19% | 0.59% | 0.15% | 0.12% | -0.01% | 0.16% | |
| CHF | 0.14% | 0.03% | 0.44% | -0.02% | -0.04% | -0.17% | -0.16% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
After coming in within a touching distance of the record-high it set at $4,380 last Friday, Gold made a sharp correction on Tuesday and lost more than 5% on a daily basis. XAU/USD extended its slide during the Asian trading hours on Wednesday and fell toward $4,000 before regaining its traction. At the time of press, Gold was up 0.8% on the day at $4,155. The improving risk mood and the US Dollar's (USD) steady recovery seem to have triggered profit-taking.
The USD Index holds steady near 99.00 after rising about 0.4% on Tuesday. There are several Federal Reserve (Fed) officials scheduled to deliver speeches later in the day but they are unlikely to comment on the policy outlook since the Fed is in the blackout period ahead of next week's policy meeting. Meanwhile, US stock index futures trade marginally higher on the day. Following a meeting at the White House with President Donald Trump, some Republican senators noted that Trump wants to end the government shutdown and that he is willing to talk to Democrats about it.
The data from Canada showed on Tuesday that the annual CPI inflation climbed to 2.4% in September from 1.9% in August, surpassing the market expectation of 2.3%. After posting small losses on Tuesday, USD/CAD stays on the back foot early Wednesday and trades near 1.4000.
EUR/USD holds steady at around 1.1600 after closing in negative territory for the third consecutive trading day on Tuesday. European Central Bank (ECB) President Christine Lagarde will a keynote speech at Frankfurt Finance & Future Summit in Frankfurt later in the day.
According to a recently conducted Reuters poll, a majority of economists who took part in the survey expect the Bank of Japan (BoJ) to raise its key interest rate in either October or December. Reuters further noted that a nearly 96% of economists expect borrowing costs to increase at least 25 basis points (bps) by the end of March. In the meantime, Japanese Prime Minister Sanae Takaichi reportedly ordered a new package of economic measures aimed at easing the burden of inflation on households and companies. After gaining nearly 0.8% on Tuesday, USD/JPY stays relatively calm on Wednesday and trades below 152.00.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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