UK & US inflation heads lower

Huge inflation fall for the UK in September, as Government hits its inflation target early..

 

 

Plenty to report on today, so let's start with what happened first..



Since our last email Monday morning, Prime Minister Rishi Sunak has had a cabinet reshuffle. The names drafted in have been welcomed on financial markets, especially with ex Prime Minister David Cameron returning to the front-line as Foreign Secretary.



Tuesday morning saw the release of UK labour data with surprisingly strong wage numbers which aided the Pound. Wages including bonus, increased 7.9% in September when the markets were expecting a 1% drop-off from Augusts' 8.4%.

 

With wages still 'too hot', it will make it hard for inflation to fall to the banks desired 2% target anytime soon. This means higher interest rates for longer, which is consumer negative, but GBP positive. 



In the afternoon, we saw wild market volatility as US inflation undershot expectations. It wasn't by much, but nevertheless, investors and traders saw fit to weaken the USD. Both £-$ & €-$ climbed to a 2-month high after the release, as the narrative suggests that the Fed has done enough to bring inflation back to target.

 

However, just how we saw last week when the USD went quickly into overbought territory, we are probably many months away from the bank taking any action on lowering interest rates. 



Onto today then and UK inflation plummeted last month on both the headline and core number. 4.6% headline figure down from 6.7% is huge and has caused UK bonds yields to fall quickly, GBP to lose some of yesterday's gains and the FTSE 100 to turn positive for 2023. The more important core number also markedly fell as it did the previous month from 6.1% to 5.7%.



To be honest, the Pound has seen limited damage from the release so far, which is a surprise and it means some of the weight (albeit potentially temporary) has been lifted on the downward pressure. 



The mid-market rate so far has seen the following highs and lows in the month;



GBP v USD - 1.2110
GBP v USD - 1.2495

 


GBP v EUR - 1.1405
GBP v EUR - 1.1555