UK Inflation saw #GBP slump yesterday; today UK unemployment holds the key for #GBP – 14th October

Investors weren’t impressed by yesterday’s UK inflation that were released at 09:30. The figures showed headline inflation turning negative, with prices down by -0.1% in the year to September. Falling petrol prices were mainly responsible: the “core” consumer price index, which ignores fuel and food costs, was up by an annual 1.0%. The reaction by Sterling was to drop immediately on the news however, this was only after an initial upward move following the merger of SAB Miller and Inbev had been announced.

Although Sterling spent the morning on the retreat it was a long way from being the day’s worst-performing major currency. That dubious honour went to the Australian Dollar, which fell by two and a quarter cents, wiping out the gains it had accrued over the previous seven days. The catalyst for the Aussie’s decline was the Chinese trade data, which showed imports falling for a tenth consecutive month. The Chinese data also strengthened demand for the safe-havens. At the front of the pack the Swiss Franc added more than a cent; the Euro was up by two thirds of a cent and the Japanese Yen went up by three quarters of a Yen. Overall Sterling fell by an average of -0.1% against the other dozen most actively-traded currencies.

Sterling will have a second chance to show its worth this morning when the UK employment data are released. If they are as unhelpful as yesterday’s inflation figures Sterling will take another hit.

Overnight the NZ Dollar took a one-cent tumble when the governor of the Reserve Bank of New Zealand said in so many words that “some further easing in interest rates seems likely”.

This morning’s Euroland data include a couple of national inflation measures and the relatively low-status Eurozone industrial production figures, which will merely confirm what investors already know about Germany and France. More important will be the US retail sales data this afternoon and the Australian jobs numbers tonight. Sterling’s fate will be determined today by UK employment statistics.