Market Commentary: Tuesday 13th August

The Nikkei was up over 3% overnight, and all the losses from last week have been recuperated. Oil has been the other major mover in the last 24 hours, closing near $80 per barrel as the U.S. sees an Iranian attack against Israel as increasingly likely. We have just had UK employment data out, showing the unemployment rate has fallen to 4.2%, and GBPUSD briefly pushed above 1.2800.

Over the course of the day, the highlights will be the German ZEW survey expectations and the Fed’s Raphael Bostic speaking. However, with a slew of UK economic data this week, I want to concentrate on that for a while. The pound may still be the only G10 currency to have outperformed the USD year-to-date, but it is also the only G10 currency to have underperformed the greenback month-to-date. Both BoE Chief Economist Pill and fellow MPC member Haskel have been hawkish in their recent commentary. The stickiness of UK services prices is of concern to many members of the rate-setting committee. In May’s Monetary Policy Report, the Bank had forecast that CPI inflation would push higher again into the end of this year, potentially reaching 2.6% due to base effects mostly linked to energy prices. In its August Monetary Policy Report, the BoE forecast that inflation will rise again this year to around 2.75% before coming down. So why have they cut? It was Governor Bailey’s vote that tipped the voting pattern 5:4 in favour of a rate cut. The strong data this morning, combined with the Q2 GDP report on Thursday, production data, and retail sales on Friday, may prompt some GBP buyers. Watch this space.

In other markets, Bitcoin rose 0.8% to $59,313.44, Ether fell 0.8% to $2,659.06, the yield on U.S. 10-year Treasuries was little changed at 3.91%, and gold fell 0.4% to $2,462.46 an ounce.

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