22/03/2017 - Inflation Above Bank of England's 2% Target - 22/03/2017

GBP

Yesterday morning, the Office for National Statistics (ONS) revealed that UK CPI climbed to 2.3% in February, up from 1.8% the previous month. This is above the Bank of England's 2% target for the first time since late 2013, and above analysts’ forecasts. Increasing transport costs, particularly for fuel, were the main contributors to the rise, while food prices also increased by 0.3% after falling for 31 consecutive months. Wage growth slowed to 2.3 % excluding bonuses, compared with a year earlier.

The Bank of England has said it expects inflation will peak at 2.8% next year, and some economists think it could rise above 3%. Markets are currently pricing in a 30% chance of rates rising by the end of 2017. Commenting on the inflation figures in a speech yesterday, Bank of England Governor Mark Carney warned "never overreact to a single data point."

EUR

The euro was on the front foot yesterday, after centrist French presidential candidate Emmanuel Macron's performance in a live television debate boosted the view that he will win the race over the far-right candidate Marine Le Pen. With the French election coming up in April, any news showing less chance of success for anti-EU Le Pen is likely to support the euro, as she has been seen as a major political risk.

Several major banks have abandoned their forecasts for a fall in the euro to below parity with the dollar over the next 6 to 12 months. The main reasons are an expected delay in Trump’s fiscal and tax plans, as well as reduced political risk in the Eurozone.

Key Announcements

14:30 – USD : Crude Oil Inventories, previously -0.2M