Pound Euro Exchange Rate Depends On UK And Eurozone CPI Inflation Data

Published: Tuesday, 16 October 2012 09:00 BST - Written by Ben Hughes

STORY LINK Pound Euro Exchange Rate Depends On UK And Eurozone CPI Inflation Data

The major risk event during last night’s Asian session came in the form of the release of the minutes of the latest Reserve Bank of Australia minutes. The memos of the Bank’s October meeting, which yielded a surprise 25 basis point cut in the domestic cash rate, proved to be broadly ‘Aussie’-neutral, due to the fact that they provided very little genuinely ‘new’ information to investors. The minutes blamed the loosening of monetary policy on a softening of Australia’s domestic labour market, and on reduced inward investment in the nation’s key mining sector caused by a generalised weakening of demand in the economies of the nation’s key export partners. The publication of the minutes has done little to quell market speculation that November’s RBA announcement, which coincides with Melbourne Cup day, will see another cut in domestic interest rates. For the moment, the GBP AUD exchange rate is holding steady in the upper-middle 1.5600s. If the RBA does cut rates in the early part o next month, the effect on the pair is difficult to quantify. However, it appears likely that a 25 basis point cut has been almost entirely ‘factored-in’ by market participants, so such an action could have a broadly neutral effect on the pair.

Elsewhere, last night’s New Zealand Consumer Price Index data for quarter 3 showed at 0.8% versus an expected 1.0%. Q2’s counterpart figure had printed at 1.0%, so the outcome would appear to afford the Reserve Bank of New Zealand renewed leeway to consider a near-term rate cut, particularly given the raft of recent evidence which suggests that economic activity in the nation’s export markets is cooling.

Today’s session is notable for the release of CPI inflation numbers for last month in both the eurozone and the UK. The data will go a long way to determining investors’ thoughts on the direction of monetary policy from the ECB and the BoE during the remainder of 2012. If the British figures show that price inflation has dipped back below the UK government’s 2.0% target for the first time in several years, then the GBP EUR exchange rate could come under sustained selling pressure.

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