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A growing wall of worry

There has been a common theme in the past few weeks in relation to central banks becoming more concerned with the global growth outlook and the Eurozone in particular. This was evident in the minutes to the UK MPC meeting released yesterday, together with RBA minutes earlier in the week and also the FOMC minutes earlier this month. The more worrying aspect is the limited ability of central bankers to tackle this emerging threat, especially in the Eurozone itself. This has changed the outlook for currencies from the one markets were getting comfortable with, although more established trends were in evidence on Wednesday as the dollar recovered further against the euro, yen and also sterling later in the day, although failing to recover the losses after the latest MPC minutes.

Overnight we’ve seen CPI data in New Zealand come in weaker than expected, down to 1.0% (expected 1.2%) from the 1.6% reading seen in the second quarter. Inflation in the tradables sector (imported and subject to overseas competition) is running at -1.0%, whilst domestic inflation is at 2.5%. The kiwi fell to 0.7810 as a result and the outlook for rates is for no change in the coming months. Provisional PMI data for the Eurozone is likely to be of particular focus given the renewed focus on the strength (or otherwise) of the Eurozone economy. Looking at other data, UK retail sales are released 08:30 GMT, with US weekly claims data following at 12:30 GMT. On the majors, note that USDJPY is close to the highs of the week just below 107.40, whilst sterling continues to look tired, with yesterday’s low of 1.6012 the initial downside support.

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