GBP, AUD flows: GBP slightly softer after CPI, AUD surprisingly weak

UK CPI has come in slightly above consensus, with the core at 3.5% y/y against a market expectation of 3.6%. But this is still a rise from 3.3% last month, and the headline number was as expected at 2.6% y/y, up from 2.3%, so it’s hard to see this as making much of a case for the doves on the BoE after yesterday’s strong average earnings data. EUR/GBP has popped slightly higher to 0.8275 from 0.8265, but we wouldn’t expect these gains to extend.

AUD/USD hit another new low for the year overnight, and continues to underperform the normal metrics. Both yield spreads and equity market performance look supportive based on past relationships, and while the strength of the USD is to some extent understandable, given the strength of the US economy, it is harder to see the case for EUR/AUD gains as we approach the 1.70 level.