Great Expectations For Inflation?

There was a weighty data clash this morning with UK inflation figures coming just thirty minutes prior to European GDP and trade balance figures. The first release for markets to digest was UK inflation figure which came in as forecast at 4 percent. The high level of inflation, twice the Bank of England target, had been expected so there was only a mild movement in Sterling after the announcement. Tomorrow morning’s inflation report which reveals the Bank of England’s stance on inflation and interest rates will be significant. A stream of data this afternoon on the US economy is expected to reveal signs of growing strength and could potentially help the Dollar’s momentum. If you have any transfers involving the US Dollar make sure you speak with your broker and stay up to speed with any movements this afternoon.

Pound Sterling – UK Markets

Following a drop yesterday afternoon, Sterling recovered against the Dollar overnight and into early trading but this morning has seen more volatility. Sterling has been experiencing mild downwards movement this morning against the Euro and tomorrow’s inflation figures and reports may generate more volatility. The official figure for January released this morning showed that inflation soared to 4 percent; twice the target rate and the highest level in the UK for two years. Although the figure is high, this was actually in line with the Bank of England’s official forecast so there has not been an immediate upwards move in Sterling so far today. The high rate of inflation adds yet more pressure to the Bank of England to raise interest rates– although a lot depends on what stance the Bank of England’s inflation report takes tomorrow morning.

US Dollar – US Markets

The US Dollar came under some pressure following Obama’s announcement of planning to cut the deficit by 1.1trillion Dollars over the next ten years with fears about the US deficit becoming more intense. However a stream of manufacturing data today is expected to show signs of improvement. This afternoon sees the US coming firmly back on to the economic calendar this with the import and export price index, manufacturing figures, retail figures, TIC flows, the housing market index, and post consumer confidence. After a quiet start to the week in terms of US data, this eclectic mix of figures this afternoon could very well bring some movement should any stand out as particularly above or below forecast with the general consensus being that the reports will reveal signs of strength. Retail sales in particular are expected to show their seventh monthly advance.

Euro – European Markets

Yesterday saw the Euro fall to a three week low against the Dollar and also move lower against the Pound as concerns re-surface about the European debt crisis. News that the Portuguese economy fell by 0.3 percent in the last quarter of 2010 did not help. However there was good news for the Euro zone with both the French and German economies growing in the last quarter of 2010 albeit by slightly less than expected. There has been a step forward with regard to the decision being made to set up the new European Stability Mechanism (ESM) with an agreed level of back up funds. Year on year GDP this morning came in only very slightly below forecasts at 2 percent.

Other Currencies – Highlights

The Japanese Yen has come under pressure as the strong reports forecast for the US this afternoon have boosted higher yielding currencies and dampened the safe haven currencies. The Australian Dollar hit a nine month high against the Yen and the rate of the US Dollar against the Yen is expected to become higher providing this afternoon’s US reports do show signs of strength. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.