Daily Market Report 18/12/12

UK inflation figures this morning

Yesterday sterling gained across the board as impressive house price data spurred an early morning rally lasting through lunch. Cable reached a two month high, before consolidating its gains later in the day.

The movement was in part aided by perceived progress on the US fiscal cliff. It appears that congress is finally ready to engage in serious negotiations to thrash out a deal. As the deadline approaches the pressure has increased to find a solution to the planned spending cuts and tax raises.

Republican House Speaker John Boehner ceded that raising tax for the most wealthy would be necessary, though insisted that social spending cuts were also a requisite to form a deal. Overnight President Obama made a new offer to the Boehner, which could set the wheels in motion for preventing the austerity, whilst also causing further dollar weakness.

Today the UK inflation data is expected to show prices increased at the fastest rate since May. Ordinarily inflation devalues a currency, but if correct, 2.7% inflation might show signs that demand is picking up and that the economy could begin to improve.

Following the announcement the Bank of England will release its inflation letter, reflecting on the figures and what they could mean going forward. This could be a point for investors to watch, whilst already this morning the positive sterling sentiment has continued in anticipation of the release later.

 

Key Announcements Today

  • 09.30am – GBP – CPI y/y: expected to remain around 2.7%
  • 09.30am – GBP – RPI y/y: expected to remain at 3.2%
  • Tentative – GBP – BOE Inflation Letter
  • 13.30pm – USD – Current Account: expected to marginally improve to -105bn