It's Inflation Day in the UK and the EU

You will all be forgiven for taking a sharp intake of air to inflate your lungs, after a breathtaking day on world markets on Tuesday.

• GBPAUD at new 2 year high, now above Brexit referendum levels

• GBPJPY climbs 6% in a week & GBPUSD up 5% over the same period

• GBP continues to rally, as talks of a Brexit deal keeps the wind in the sails of the Pound.

Inhalation rapidly turns to a focus on inflation this morning in the U.K. and EU. The U.K. core and retail price index numbers are released as our gaze strays to economics once more.

Yesterday, we mentioned the sideshow of U.K. employment and average earnings and thus it became a sideshow. As predicted after a run of great numbers, there was the inevitable paring back. However, that did little to derail the rally in Sterling.

The Brexit train came hurtling down the tunnel full steam ahead. Water turned to fresh air, as the pound flew higher into new territory. At one point yesterday implied 1 week volatility for GBP hit 17 per cent! To put that into perspective; that’s the highest number since the EU referendum result.

The FX market at least is positioning for a deal. GBPEUR powers through 1.15 and GBPUSD through towards 1.28. One of the most notable currency pair moves has seen GBPNZD gain over 5 per cent in less than a trading week. For a G10 currency pair, that’s quite something.

There is still much water to go under the bridge, as the midnight hour ticked by last night the all important detail and DUP sign off on the Irish Sea border remained, unconfirmed. So where to from here is the cry? Consolidation, retracement or continuation? Crucially what’s the approach in these very changeable market conditions?

All of a sudden, importers are in a much better place, able to fix at higher levels forward and fill in spot requirements at more palatable rates. For those who are able, hedges with participation in favourable moves now have much better worst case scenarios. On the flip side, exporters can still enjoy historically low levels, but forward looking hedging programmes need serious consideration and management. We may now be seeing the worm turning for GBP for a protracted period.

US Dollar News

Elsewhere, Wall Street rose as earnings season kicked off with higher than expected data reports led by investment bank JPMorgan. Seemingly lost amongst this were geopolitical warnings from the IMF.

They have slashed their global growth forecast to 3.0% in 2019, the slowest since the 2008 financial crisis, with escalating China/US trade tariffs high on the agenda. Gold, the Swiss franc and the Japanese Yen remain long term beneficiaries of this global risk play. President Trump at least for now gets to see his precious Stock Market rally continue.

All eyes back though to GBP on the currency exchanges. Positive news from Brussels will surely extend the Pound higher, and alongside a decent RPI inflation post could bolster GBP bulls and the import community. It could be another volatile journey. Have a great day and good luck.

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