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The pound jumped higher across the board near the start of the session, thanks to the U.K.’s better-than-expected CPI report. However, GBP bears returned with a vengeance after The Times released a report claiming that Theresa May will reject Barnier’s proposal to resolve the Irish border issue.

The higher-yielding Aussie and Kiwi, meanwhile,  were still in demand, likely because of the risk-on vibes in Europe.

The safe-haven currencies (USD, JPY, CHF) are also worth noting since they were all under bearish pressure, with the Swissy getting the worst of it. In fact, the Swissy is THE biggest loser of the session since the pound’s late slump wasn’t enough to totally erase the pound’s gains against the Swissy.

Other than those, the euro is also worth highlighting since it closed out the session mixed but a net loser. And from the looks of it, the euro was also a victim of that report from The Times, although the euro also appears to have been taking hits because of Di Maio’s comments.

  • Euro Zone current account: €21.3B vs. €22.4B expected, €23.8B previous
  • U.K. CPI m/m: 0.7% vs. 0.5% expected, 0.0% previous
  • U.K. CPI y/y: 2.7% vs. 2.4% expected, 2.5% previous
  • Core U.K. CPI y/y: 2.1% vs. 1.8% expected, 1.9% previous
  • HPI in the U.K. y/y: 3.1% vs. 2.8% expected, 3.2% previous
  • U.K. PPI input m/m: 0.5% vs. 0.4% expected, 0.0% previous
  • U.K. PPI output m/m: 0.2% as expected vs. 0.0% previous

Major Events/Reports:

U.K. CPI report

The Office for National Statistics (ONS) released the U.K.’s August CPI report earlier.

And according to the report, headline CPI increased by 0.7% month-on-month, beating expectations for a 0.5% monthly increase.

Year-on-year, CPI rose by 2.7%, which is the strongest reading in six months and is contrary to expectations that the annual reading will decelerate slightly from +2.5% to +2.4%.

More importantly (for rate hike junkies), the +2.7% reading is well above the BOE’s forecast that CPI will increase by 2.4% year-on-year in August, as laid out in the BOE’s August 2018 Inflation Report.

A closer look at the details of CPI report also shows that the stronger headline reading’s was broad-based since 11 of the 12 CPI components printed positive numbers. And of those 11 CPI components, 6 printed stronger annual increases, while only 3 printed weaker readings and the rest maintained the previous month’s pace.

Brexit-related rumor

The Times released a report late into the session. And according to the report, British PM Theresa May will supposedly reject E.U. Chief Brexit Negotiator Michel Barnier’s “improved” proposal for the Irish border issue.

The report also cited an unnamed “senior government source” as saying that Theresa May will reject Barnier’s proposal because the E.U. still insists that “Northern Ireland be treated as a separate customs jurisdiction from the rest of the United Kingdom,” which goes beyond the U.K.’s “red line“.

Di Maio speaks

Italian Deputy Prime Minister and 5-Star Movement Head Luigi Di Maio was interviewed earlier. And he said that:

“We can’t wait two or three years to maintain our promises.”

He was referring here to the coalition government’s plans to increase spending, lower taxes, and provide a guaranteed income for poor Italian citizens, which would mean a higher budget deficit.

Other than that, he also said that (emphasis mine):

The objective is not to reassure markets. The objective of the budget is to improve the quality of life of Italians.”

By the way, if you wanna know more why Italy’s 2019 budget has been garnering attention lately, then you may wanna check out Forex Gump’s Why All The Buzz About Italy’s 2019 Budget?

Kuroda’s presser

Earlier today (just before the London session rolled around), BOJ Shogun Kuroda held a presser on the BOJ’s most recent monetary policy announcement.

And, well, Kuroda reiterated that inflation is still low, so he repeated the BOJ’s mantra that:

“We must maintain our powerful monetary easing given it will take time to achieve our inflation target.”

Kuroda was also asked if the BOJ has any plans to exit its super loose monetary policy, to which Kuroda replied as follows:

“If we achieve our 2 percent inflation target, there’s no need to continue with our massive monetary easing, so we’ll obviously head toward an exit. But that doesn’t mean we should not continue monetary easing now.”

“No central bank wants to tighten or ease policy indefinitely. Any central bank obviously would want to achieve its target as soon as possible and normalise policy.”

Some risk-taking in Europe

The major European equity indices had a soft start and hesitated for a while. However, it soon became apparent that risk-taking was the more dominant sentiment since most of the major European equity indices eventually began inching their way higher.

And according to market analysts, the prevalence of risk appetite in Europe was due to demand for mining shares and expectations that the U.S. and China will still sit and reason together, despite the recent escalation in the ongoing trade war.

However, those same market analysts also noted that there were lingering trade-related fears, which is why gains were capped.

  • The pan-European FTSEurofirst 300 was up by 0.08% to 1,482.16
  • Germany’s DAX was up by 0.27% to 12,190.91
  • The blue-chip Euro Stoxx 50 was up by 0.11% to 3,358.85

Major Market Mover(s):

GBP

The pound jumped higher across the board and claimed the top spot when the U.K.’s CPI report surprised to the upside.

Unfortunately for the pound, bears returned and mauled the bulls when Brexit-related jitters ramped up after The Times released a report claiming that Theresa May will reject Barnier’s proposal for solving the Irish border issue.

Dip demand on the pound was noticeable, though, since GBP bulls were trying to push the pound back up after the rumor-induced drop. Still, the damage was already done.

GBP/USD was down by 4 pips (-0.04%) to 1.3148 but reached a session high of 1.3215 earlier, GBP/NZD was down by 18 pips (-0.09%) to 1.9902 but reached a session high of 1.9994 earlier, GBP/AUD was down by 32 pips (-0.18%) to 1.8129 but reached a session high of 1.8233 earlier

AUD & NZD

The higher-yielding Aussie and Kiwi continued to rake in gains during the morning London session, likely because of the risk-friendly environment in Europe.

AUD/USD was up by 10 pips (+0.14%) to 0.7251, AUD/JPY was up by 13 pips (+0.17%) to 81.47, AUD/CHF was up by 34 pips (+0.49%) to 0.7021

NZD/USD was up by 4 pips (+0.06%) to 0.6604, NZD/JPY was up by 5 pips (+0.07%) to 74.20, NZD/CHF was up by 26 pips (+0.41%) to 0.6395

CHF

All the safe-haven currencies (USD, JPY, CHF) were feeling a bit under the weather during the session, likely because of the risk-on vibes in Europe.

However, the Swissy was noticeably much weaker, so much so that the pound’s late slump was not enough to erase the Swissy’s losses against the pound, which means that the Swissy was the biggest loser of the session (and of the day for that matter).

Maybe the SNB was sneakily weakening the Swissy?

USD/CHF was up by 33 pips (+0.35%) to 0.9683, EUR/CHF was up by 42 pips (+0.38%) to 1.1311, GBP/CHF was up by 41 pips (+0.33%) to 1.2728

Watch Out For:

  • 12:30 pm GMT: U.S. building permits (1,310K expected vs. 1,311K previous) and U.S. housing starts (1,235K expected vs. 1,168K previous)
  • 12:30 pm GMT: U.S. current account (-$103.3B expected vs. -$124.1B previous)
  • 1:00 pm GMT: ECB Overlord Draghi is scheduled to speak
  • 2:30 pm GMT: U.S. crude oil inventories (-2.7M expected vs. -5.3M previous)