The pound hit a 7 week high yesterday against the dollar after an unexpectedly strong inflation report boosted the currency. The Consumer Prices Index (CPI) grew by 0.1% which is better than forecast and up from 0.0% compared to June.
The core inflation measure increased to 1.2% from 0.8% which is higher than the predicted 0.9%. This was due to a smaller fall in clothing prices as well as falling prices for food and non-alcoholic beverages which partially offset the rise.
The higher inflation reading caused the pound to strengthen, this raised expectations that the Bank of England would increase the likelihood that interest rates would rise earlier that anticipated. External MCP member Kirstin Forbes warned yesterday that keeping interest rates low for too long risks undermining Britain’s economic recovery, especially if the increase was rapid rather than the gradual path we expect.
A majority of German MPs are expected to vote in favour of the controversial third Greek bailout later on today. Some MPs suspect that the deal could lead to part of Greece's debt to be written off - with EU taxpayers having to foot the bill. Many MPs want assurances that the International Monetary Fund will contribute to the bailout - but the IMF is avoiding any commitment until Greece's progress is assessed in October.
New-home construction in the U.S. rose in July to the highest level in almost eight years, indicating the industry will pick up in the second half of the year. The Commerce Department report in Washington showed that residential starts rose by 0.2% to 1.21 million from 1.2 million in the previous month, the most since 2007.
Rising employment and historically low mortgage rates are enticing buyers, while increasing prices prompted by a lack of homes on the market is an incentive to start new developments
09:30 – USD: Consumer Price Index (YoY) expected to remain unchanged at 1.8%
18:00 – USD: FOMC Meeting minutes will be released.