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UK inflation key mover for Sterling today - RBS

FXStreet (Bali) - RBS Economics look for UK CPI to tick higher to 1.3% yoy (1.2% previous), above 1.2% Bloomberg consensus, although RBS Strategists still favour fading any type of GBP strength short term.

Key Quotes

"GBP has found itself under consistent pressure since the release of last week’s Quarterly Inflation Report. The projections broadly validated market expectations of an August first BoE rate increase, yet price action suggests the market was positioned for the report to strike a somewhat more balanced tone. Significant downward revisions to the near-term inflation profile may also be generating some doubt that inflation will return towards target at the policy forecasting horizon as the BoE currently expect."

"This would help explain the pushing back of the pricing of a first rate increase to the end of next year. In this context, October inflation data will be closely watched. RBS Economics look for CPI to tick higher to 1.3% yoy (1.2% previous), above 1.2% Bloomberg consensus, as some of the outsized declines last month normalize (RBS 'A Week In Economics')."

"Still, this needs to be seen in the context of a longer-term downtrend and we look for CPI to resume its downtrend in subsequent months, likely falling sub-1% by year-end. This would require the Governor to write an explanatory letter to the Chancellor, which while having little macroeconomic significance per se, would likely serve to further entrench the Bank’s dovish policy setting."

"As yield support for GBP fades, we see focus increasingly switching to UK imbalances and noisy politics. This suggests continued GBP underperformance. Short-term, we see particular potential for upside in EUR/GBP, given positioning and a view that short-term negative EUR event risks may be appropriately priced for now. A possible pick-up in the German November ZEW expectations component tomorrow would likely be supportive.

AUD/USD awaits further impetus from the week

AUD/USD is trading at 0.8723, up 0.17% on the day, having posted a daily high at 0.8727 and low at 0.8698.
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