What’s been happening?

UK: The brakes were firmly diploid yesterday on recent sterling advances following a weaker than expected CPI figure. Markets were expecting a printing of 2.7% but the actual figure was 0.2% on expectation. The pound was sold heavily against both the dollar and the euro falling circa 2 cents from the recent year high against the dollar and 0.5% versus the euro. The CPI figure, heavily linked to interest rates, now takes the spotlight off the BoE to raise interest rates this year. Although we still expect a rate rise next month, the BoE ‘could’ deliver somewhat of a ‘dovish’ hike which would negatively impact the pound. This is something of a concern as history could repeat itself from last year, where the Old Lady of Threadneedle delivered a similar message dragging down the pound. Further negative news this morning for the pound came in form of retail sales. Trade in the UK fell 1.2% MoM following a 0.8% increase in Feb this year. The pound has been sold because of this and dollar buyers would do well to remove some exposure risk in the event of further GBP weakness. 

EU: CPI didn’t surprise yesterday falling inline with expectation. It was not so much euro strength, but pound weakness yesterday as CPI from the UK fell short of expectation slightly, reducing the probability of a rate hike next month by the BoE from 90% to 80%. Meanwhile, today sees Macron and Merkel put their heads together to strike a balance regarding reform in the EU. If no agreement is reached, we may start to see this impact an already ‘nervous’ euro which has not been supported of late by any form of strong economic data.

US: The dollar enjoyed some rare gains against the pound yesterday as inflation news from the UK disappointed. President Trump is currently conducting trade talks with Japanese PM Abe and the market awaits news of this, which could shape the dollar’s direction. Watch for the tone and language used tomorrow by Fed Reserve member Evans as he speaks on the economy and monetary policy. Hints or clues may be delivered in his address which has the potential to impact the dollar.

What’s coming up?

UK: BoE member Saunders will be speaking in Glasgow Scotland tomorrow. It is not expected that this will impact markets significantly. The big data out of the UK next week will be on Friday where GDP for the year will be revealed.

EU: We have the ECB’s rate decision on Thursday next week followed by German unemployment claims on Friday. Short-term market moving data from the EU is limited for the rest of this week with the bulk of key data due out next week.

US: Initial Jobless Claims and the Phillie Fed Business Outlook is out this afternoon. Tomorrow will see Fed member Evans speak on the economy and monetary policy.

RoW

Commodity currencies benefited overnight from a large bounce back in the commodity markets. Iron ore which the Australian economy heavily relies on appreciated along with crude oil and copper prices. Oil was up 2.7% and has hit a 3-year high. New jobs also disappointed yesterday for the Aussie printing a positive 4.9K versus an expected 21K. The Bank of Canada delivered a rather ‘dovish’ tone in yesterday’s policy meeting resulting in a weaker dollar. The Loonie, named due to the appearance of a common bird (the Loon) on a one-dollar coin, had been gathering strength due to the improving conditions in the North American Free Trade Agreement (NAFTA).