Inflation is quite a complex economic indicator; as reflected by central banks from the US, New Zealand and Japan that favour a rise up towards 2%, compared to the Bank of England and Brazilian Central bank, which are eager for inflation to reduce. No central bank wants hefty movements in either direction and that is precisely what we got from the UK last night with a drop from 2.7% to 2.2%. Concerns that this is a trend rather than a one off and could quickly cool consumer demand in the UK. The Pound dropped over a cent versus the Greenback, touching lows of $US1.5854 before recovering to be above $US1.59, where it remained in trading this morning. The Aussie dollar meanwhile lacked any lasting support overnight and despite taking 1 cent off the Pound following the print, the GPB quickly rallied to a weekly high of $AUD1.7147 some hours later.
Without data to drive the US dollar overnight it was Fed Reserve comments that drove its strength against the Yen, Aussie and Kiwi dollars. Both Fed Bank of Atlanta President Dennis Lockhart and Dallas Fed President Richard Fisher put tapering on the agenda for the December Fed meeting which helped drive the Dollar to peak at 99.80 Yen, before it retreated through the US session. The Australian dollar traded below $US0.93 for a few hours earlier this morning, while the Kiwi plumbed a 7 week low.
Today’s session will be driven early by Westpac Consumer Sentiment that rose by 1.9% in November, supporting the AUD this morning. Continuing the central bank theme; RBNZ Governor Wheeler is set to testify before the Parliament Select Committee in Wellington. The Pound will continue to be actively traded as we lead into tonight's Unemployment read, which will likely see the Pound well supported if market estimates of a drop to 7.6% are accurate.
