Daily FX Update – 17th October 2017

Inflation in the US caused a stir in an otherwise clear path for the gradual normalisation of US monetary policy last week as some members of the FOMC showed concern that low inflation may remain persistent. This was backed up by a weaker than expected CPI reading at the end of the week. A speech by Janet Yellen over the weekend still signaled a hawkish tone from the FOMC for a gradual rate hike trajectory and as it stands, the inflation undershoot hasn’t done enough to derail another rate rise before the year is out in our opinion. This has also kept the Dollar comeback it has enjoyed over the last couple of weeks broadly on track.

At the minute, politics are in focus more than macroeconomic fundamentals and this can shift the landscape of an established trend very quickly. Brexit, Catalonia, Austria and the constant US / North Korea spat are all factors that the market is focused on and the Dollar is finding it’s feet again as a traditional haven currency as the glow of the Euro has somewhat faded of late. This, together with a volatile landscape in the EU and UK are keeping a lid on moves higher in both the single currency and the Pound.

A busy and crucial few days for the Pound in advance of the November rate meeting starts with CPI this morning which is expected to have climbed to 50% over target to 3%. Mark Carney also testifies at a parliamentary hearing. We also have German ZEW, EU inflation, US export and import prices along with industrial and manufacturing output.

Have a good day.

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