Inflation Offers Respite to the BoE

Along expected lines, consumer price inflation data just released has revealed an easing trend for April, inching closer to the central bank’s inflation target. The focus now squarely shifts to tomorrow’s BoE minutes to gauge future policy moves. With a light US and European economic calendar, risk sentiment is likely to remain subdued in today’s trading session. Meanwhile, markets keenly await the Fed Chief’s testimony before Congress tomorrow for the central bank’s take on the economy and the bond buying programme. A hawkish view is likely to increase the greenback’s appeal in the near term.

Pound Sterling – UK Markets

The Pound is trading lower against the Euro and the US Dollar in today’s trading session, after data just out revealed that consumer inflation in the UK eased more than expected to 2.4% for April from 2.8% recorded last month, helped by a fall in commodity prices. However, with inflation still hovering well above the central bank’s target rate, the scope for additional stimulus seems limited. The BoE minutes of the last policy meeting due tomorrow will be keenly eyed for insights into the central bank’s future policy moves. Additionally, public sector borrowing data due tomorrow will garner market attention to gauge whether austerity measures in the UK had any material impact on public debt. Retail sales figures also hold relevance in tomorrow’s session and, given the benign inflation outlook, the report is likely to reinforce the widely held view that the British economy is gaining momentum. With key economic data out for the day, market participants will monitor external developments for further insights into risk appetite.

US Dollar – US Markets

Lack of decisive news has prompted traders to adopt a cautious approach, leading the greenback to trade in a tight range against the single currency in today’s trading session. Meanwhile, US economic data continued to portray a mixed picture, as data released yesterday revealed that Chicago national activity index moved further into negative territory for April, in line with the other regional manufacturing surveys released last week. Meanwhile, the Chicago Fed Chief, Charles Evans, indicated that although the US economy has witnessed quite a lot of improvement this year, the Fed requires more time to evaluate whether the gains in the labour market are sustainable before it can begin altering the pace of bond purchases. With suspense heightening on whether the Fed would begin tapering its QE programme anytime soon, markets keenly await Ben Bernanke’s testimony before Congress tomorrow for clarity on the central bank’s future policy stance. On account of a light US economic calendar today, comments from Fed officials later today, ahead of the FOMC minutes tomorrow, are likely to have an influence on risk sentiment.

Euro – European Markets

The single currency failed to gain impetus against the US Dollar yesterday following sluggish Italian industrial production data. In sharp contrast to the Euro zone industrial production data, figures released yesterday revealed that Italy’s annual industrial output fell sharply for March, the fifteenth consecutive monthly decline, largely affected by tough austerity measures adopted by the nation. Italy’s President Giorgio Napolitano called for immediate measures to boost the sluggish economy and ease unemployment concerns following disappointing data. With the recent macro data continuing to paint a dismal picture, markets keenly await manufacturing and services PMI data, due later this week, to gauge the effectiveness of easing measures adopted by the central bank. Meanwhile, the common currency has limited losses and is trading closer to the 1.29 mark against the US Dollar in today’s trading session. With another day of a light economic calendar, the common currency is likely to monitor overseas events for further cues.

Other Currencies – Highlights

The minutes of the Reserve Bank of Australia’s last policy meeting released today revealed that a benign inflation outlook, a slowdown in mining and sustained strength in the Australian Dollar, prompted the central bank to cut interest rates to boost the economy. Although the Aussie Dollar moved marginally higher following the minutes, the upside looks limited due to a lack of triggers in today’s trading session. Meanwhile, data showed that the Conference Board’s leading index in Australia rose at a slower pace for March. In the absence of major economic news in Australia today, markets keenly await the Westpac consumer confidence data due tomorrow for further insights into the state of recovery. Additionally, Australia’s consumer price inflation expectations and China’s manufacturing PMI data, due later in the week, will have profound influence on the near term direction of the Australian Dollar against the majors.