Sterling was held in generally narrow ranges during Tuesday with a lack of major developments during the day. Overall confidence in the UK outlook remained notably weak, but there were also some speculation that much of the bad news had been priced in. Bank of England Deputy Governor Ramsden stated that further increases in interest rates were likely, although he also said that it was possible that an economic downturn would lead to rate cuts next year. There was further pressure for additional government support to ease the pressure from higher energy prices with fears over even steeper price increases in October and January. Towards the European close, there were reports that the UK was preparing for the possibility of power cuts to homes and industries during January with fears that very dry conditions in Norway would trigger a sustained decline in electricity exports to the UK.
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The Euro edged higher in early Europe on Tuesday with the dollar unable to gain sustained support as global equities posted net gains. The Euro posted daily highs but drifted lower towards the European close as equities moved lower with Euro support also sapped by a decline in the DAX index amid underlying fears over the German outlook. There were on-going fears surrounding gas supplies.
Key Data
7.00 German Harmonized Index of Consumer Prices (YoY) (Jul) Act. 8.5% Exp. 8.5% Prev. 8.5%
The US NFIB small-business confidence index edged higher to 89.9 for July from 89.5 the previous month and slightly above consensus forecasts. Business owners were still concerned over inflation pressures with 37% of owners reporting that inflation was the most important problem, the highest proportion since the end of 1979. The IBD consumer confidence index dipped to 38.1 for August from 38.5 previously which was below consensus forecasts of 40.0 and the weakest reading since 2011. The consumer confidence data will maintain some reservations over the outlook for spending, although overall correlations remain limited. The latest US consumer prices data will be released on Wednesday and will have an important impact on interest rate expectations and currency markets.
Key Data
13.30 Consumer Price Index ex Food & Energy (MoM) (Jul) Exp. 0.5% Prev. 0.7%
13.30 Consumer Price Index ex Food & Energy (YoY) (Jul) Exp. 6.1% Prev. 5.9%