Inflation, keep climbin’ higher and higher

GBP

UK yields continued to press higher as speculation grows that the Bank of England could move to raise interest rates at the November policy meeting. GBP/USD rose to 1-month highs yesterday whilst the EUR also surrendered an advance as we approach 18-month highs in GBP/EUR.

This morning, an early release of the latest UK CPI data recorded a slight decline in the forecast rate, printing 3.1% from 3.2%. With Inflation being a hot topic, this could provide a temporary respite on the march to 4% in the coming months. With energy prices increasing this could pull inflation higher in October and beyond as a result of soaring gas prices – leaving the MPC with a difficult task ahead in supporting the economy and tackling inflation.

EUR

Over in Europe, inflation is also in focus as we await the September CPI figures due for release at 10 am. According to earlier flash estimates, numbers increased to 3.4% y/y in September, which is above the ECB’s new 2% symmetric target. The headline CPI figure is the highest since 2008, with the rise in recent months reflecting higher energy prices and the broader impact of supply issues.

ECB’s member Villeroy stated that there was no reason for them to increase interest rates this year, also reiterating that higher inflation is transitory and commented that inflation should fall back below 2% by the end of 2022.

USD

The focus for the US today will be the Federal Reserves Beige Book report, which is expected to be optimistic as the US prepares to taper asset purchases. The dollar continued somewhat of a retreat yesterday as an improvement in risk appetite drove investors out of the safe-haven currencies and into risker ones, causing the greenback to end the day lower against all the major currencies.

We have a host of FOMC speakers also due this afternoon, but with a taper announcement a near-certainty, it’s hard to imagine any comments that could move the markets.