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It’s been a volatile week for the financial markets. Stock indices around the world have snapped lower as global economic data disappointed expectations, concerns for any eurozone recovery failed to dissipate and the panic over Ebola spread through the western world. The USD has generally felt the benefit of all this as investors take flight to the safe haven of the dollar.

GBP/USD fell below 1.60 last week as annualised UK CPI numbers from Tuesday fell to their lowest level in five years. The main reading showed y/y UK consumer price index fell to 1.2%, 0.2% below forecasts and 0.3% below the previous month. The core y/y CPI figure (adjusted to exclude seasonally volatile products such as food and energy) printed 1.5%, 0.3% below expectations and 0.4% down from the previous month. With the Bank of England highlighting an inflation rate closer to 2% as one of the main fundamentals for an interest rate hike, the low readings threw cold water on any expectations of a rate hike in the first quarter of 2015.

The next day, UK unemployment rate fell to 6% bringing the number of UK unemployed below the two million mark for the first time in almost six years. Once again, average earnings were shown to be failing to keep pace with the rate of inflation, pushing back expectations for a rate hike even further.

By Alex Edwards at UKForex, an international money transfer service

Lower than expected US producer price index, retail sales and NY empire state manufacturing index released later in the week stoked more fears for a slow global recovery, which in turn weighed heavily on the euro. Heaping further pressure on the single currency was the release of weaker than expected eurozone industrial production and ZEW surveys of economic sentiment in the Europe and Germany. European industrial production printed y/y -1.9%, vs exp. -0.9% and m/m -1.8%, vs exp. -1.6%. The ZEW surveys of economic sentiment posted -3.9% vs exp. 1.0 for Europe and 4.1 vs exp. 7.1 for Germany. Along with said surveys the ZEW president, Clemens Fuest, stated “negative Q3 growth in Germany cannot be ruled out”.

Slightly better than expected European CPI data released later in the week lent some support to the euro and EUR/USD finished the week slightly stronger than where it was mid-week, ending at 1.2815.

Next week, attention will switch to the MPC minutes. In particular, we’ll see if members are as dovish on the potential for interest rate hikes during the first part of next year as the market is. UK GDP is due later in the week. In addition, manufacturing data from the EU will be released, which will no doubt grab some attention. US CPI will be the biggest data release from across the pond.

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