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Inflation surprise

EM rally continues

More of the same on Wednesday saw continuing appetite for emerging markets and limited demand for safe havens. It was the Swiss franc that took it on the chin this time, falling by 0.3%, while the South African rand pushed ahead by an average of 1.0%

Sterling was unchanged against the US dollar, the euro and the Japanese yen. It was also flat against the Norwegian krone, surprisingly so given the 3.7% rise in oil prices. The rand's advantage, aside from the broad demand for emerging markets, was a slowdown in inflation from 5.1% to 4.9%. This was also counter-intuitive: the South African Reserve Bank's Monetary Policy Committee meets today to consider monetary policy  and the lower inflation rate - at least in theory - reduces the likelihood of a rate hike.

There are two more central bank policy decisions on the agenda.  The Swiss National Bank's benchmark rate is expected to remain at -0.75% but there is every chance that the Norges Bank will tighten from the current 0.5%.

Confused.uk

Sterling's lack of net change against the Greenback and euro belies what was actually a busy morning for the pound. Higher-than-expected UK inflation data sent it north before prime ministerial comments on the Brexit deal pulled the rug from under its feet.

Consumer price index inflation unexpectedly accelerated from 2.5% to 2.7% in August. Investors had been looking for it to slow to 2.4%. As postulated yesterday, investors focused less on the erosion of consumer spending power than they did on the implied upward pressure on interest rates. Sterling jumped half a cent higher against the dollar.  

A couple of hours later the pound dropped back after reports that Theresa May had spurned the EU's "improved" proposal for the internal Irish border.  Overnight she threw more petrol on the fire when she said there could be no delay to Brexit, even if it meant leaving by the cliff-edge rather than the stairs.

Down under

Although the rand was Wednesday's leader by quite a margin, the Kiwi put in a late run after New Zealand second quarter growth came in much better than forecast. The Aussie did not perform as well as it might have done, despite a Reserve Bank of Australia report that an all-out trade war could send it higher.

New Zealand's gross domestic product expanded by 1.0% in the second quarter, putting annual growth at 2.8% for the year to June. The numbers were punchier than expected and sent the NZ dollar 0.8% higher on the day. The Australian dollar could only manage a 0.3% rally, even after Bloomberg drew attention to an RBA study which suggested that it could benefit from a trade war.

From sterling's point of view, today's action centres on the UK retail sales data at half past nine. The consensus among analysts is that sales will have fallen by 0.2% in August, leaving them 2.3% higher on the year. Other ecostats today cover US jobless claims and existing home sales and Euroland consumer confidence.

GBP higher on CPI, lower on PM

GBP higher on CPI, lower on PM

AUD unaffected by "secret" RBA study

AUD unaffected by "secret" RBA study

ZAR helped by inflation slowdown

ZAR helped by inflation slowdown

NOK ignores higher oil prices

NOK ignores higher oil prices

NZD higher on punchy Q2 growth

NZD higher on punchy Q2 growth

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