Global Foreign Exchange Market News Update
GBP/USD is currently trading at about 1.5345, GBP/EUR is trading at about 1.3475, so GBP/EUR and GBP/USD very similar to where they were this time on Tuesday. The main story in the markets was UK inflation coming out 0.3% on Tuesday, the lowest since records began back in 1989. If you extrapolate that back in accordance to some calculations that the Bank of England has done, that may have been the lowest level in inflation terms since the 1960s in the UK.
Now, headline inflation, the figure that everyone has been talking about, that 0.3% fell obviously as a result of the moves that we’ve seen in food and oil prices. Fuel price is down 16% over the course of the past year, food price is also down 2.5% and both are at record lows. Naturally, we’re going to see the headline rates of inflation also coming lower, they should be no surprise over that.
The core rates of inflation however, if you take out those volatile elements of food and fuel, rose to 1.4% (which is a good number) and that also shows that the British are not really seeing deflationary pressures in the United Kingdom and backs up certainly what the Bank of England said last week that likely low headline inflation through the first part of the year and then picking up later on later on in 2015. One impetus, one catalyst for that pickup in inflation could be wages and should be wages as we move through 2015. We’ll get the latest wage numbers to have risen anyway to up to 1.7% - 2% over the course of the month of December. Therefore, if you take away that 0.3% or 0.5% inflation number, depending on where you are, either December’s or January’s, then we’re looking at decent real wage gains for the average UK consumer.
Obviously, we’re nowhere near the levels that we saw pre-global financial crisis in the forex trading market, but it will be the highest level since the mid part of 2008. That’s a positive for spending and a positive for the UK economy moving forward. Obviously, we’ll also get the wider unemployment report, where we’ll be looking at the unemployment report and the jobless claims kind of rate as well. We’ll also get the Bank of England minutes, although most of that would have been given away in this part of the quarterly inflation report last week.
Once again, the euro stayed very stable overnight as we continue to hear negotiations around what’s going on and what’s going to happen to Greece. It looks like the latest negotiations basically centers around Greece keeping its loan arrangements as it currently stands and then going back to the EU and saying “these conditions can be attached” and oversee negotiating around those conditions. Germany said “we’ll wait to see what Greece says, we’re not going to dismiss it out of hand”, which is a bit noble for the Germans I’ll admit, but as it stands at the moment, we’re still in that holding pattern awaiting for February 28th.
Elsewhere, fairly quiet overnight, with the Japanese Central Bank maintaining its stimulus at ¥18 trillion over the course of the year. We’re expecting more stimulus from the Bank of Japan as early as April, given the falls in oil prices and the impact that has had on the creating of 2% inflation within that economy. Other news are in the form of Fed news overnight, but I’m not expecting too much from it.