Softening inflation in Great Britain

The biggest release overnight was the PPI release for the UK. The number is softening and dragging the pound down with it. There are some market players out there that are suggesting that since the dollar didn’t get brutalized after last Friday’s non-farm payroll’s release, that there must be strength there. The idea that if the dollar won’t sell off, it must be going up. Not sure I’m gonna buy into that. Instead, I think the idea that there isn’t as much inflation out there in Europe would be the bigger culprit in the buying of the dollar. One reason is that the non-farm payrolls wasn’t that bad. It was soft. Not horrible.

Here are the charts on the input and output inflation releases for the UK:

072006Ukppinput 072006Ukppiouput

Both of these charts are showing some recent softening. For that, the pound may have found some softening as well. The BoE has held rates at 4.50% for about a year now. There isn’t a huge move to see rates move higher, although David Walton of the Bank has voted the past two times to raise rates by .25%. This is where any pound selling is gaining in momentum. The interest rate differential is lower here in the U.K. compared to the U.S.

Next week we get the U.S. PPI and CPI with PPI coming out first. The U.S. PPI has been a bit softer as well, the past couple of releases. I think the short-sighted market forgets these things. The reminder comes next week, with a likely reversal of today’s move. That’s the problem, though. The market will recoup the moves from today but not make much headway beyond.

Trading has been getting mundane lately.

Bank of England: Monetary Policy

National Statistics: PPI
July 10, 2006

FX Street:
AFX News: Dollar shows resilience despite weak US data
July 10th, 2006