UK Inflation Beats Expectations

GBP

Sterling had some respite on Wednesday after inflation picked up in July, but it was still not enough to keep it far from its recent lows. The consumer price index rose 2.1% year-on-year for July, above many economists prediction of 1.8% and close to the Bank of England’s traditional 2% inflation number. This positive data followed positive wage growth on Tuesday, and strong inflation usually bodes well for higher interest rates and a stronger currency. However, the pound is still heavily depressed by the potential for a no-deal Brexit and investors have not shifted their expectations about a no-deal and further political uncertainty.

USD

The US Treasury yield curve inverted for the first time since 2007 on Wednesday, causing panic among investors and this led to a strengthening in safe-haven assets. This curve inversion shows short-dated bonds yielding more than their longer-dated counterparts, which is particularly significant as this is a usual sure-sign that an impending recession is due. As a result, global markets were spooked and safe-havens were the beneficiaries.

Key Announcements

13:30 – USD: Retail Sales Control Group (Jul); expected to fall to 0.3% from previous 0.7%

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