Earlier today, the European Court of Justice’s non-binding opinion indicated that sovereign debt purchases by the central bank “in principle” abide by the EU law. Meanwhile, with no crucial macro updates in the UK today, Sterling investors will keep a tab on the BoE Chief’s testimony to the Treasury Select Committee. His comments will be eyed by traders to gain more clarity on the central bank’s policy stance going forward, especially after yesterday’s data showed a more than expected fall in Britain’s consumer price inflation for December.

Across the Atlantic, traders will eye today’s retail sales data in the US to help investors gain an insight into the nation’s consumer spending trends, given its influence on economic growth.

Pound Sterling – UK Markets

Yesterday’s consumer price inflation data in the UK indicated that price growth halved for December, especially after global crude oil prices dropped sharply. However, with the core inflation measure suggesting that prices excluding food and energy in the UK rose in line with market estimates, Sterling investors shrugged off yesterday’s soft inflation reading, with the pound actually gaining ground. Meanwhile, the BoE Governor, Mark Carney, stated yesterday that Britain’s inflation is anticipated to fall further going forward and strengthen the possibility that price drops in the energy and food sectors might widen their impact on the nation’s core inflation rate. However, he downplayed hopes of more monetary stimulus in the UK but indicated that the central bank might consider a delay in raising interest rates if inflation continues to ease.

Today, Sterling has edged higher against its key peers ahead of the BoE Chief’s testimony in front of the Treasury Select Committee later today and has gained significant ground versus the euro, to trade currently at a 6.5 year high.

US Dollar – US Markets

The greenback is trading in a tight range against the majors this morning ahead of US retail sales data which is anticipated to show a decline in domestic sales for December, amid low gasoline prices and soft auto sales. However, market participants will keenly eye retail numbers excluding auto and gas expenditure to gauge if low energy costs kept domestic spending levels supported during the crucial festive period. Moving ahead, traders will keenly eye consumer price inflation data in the US later this week for further direction.

The US Dollar gained ground against the Euro yesterday on rising expectations of the ECB unleashing fresh monetary stimulus measures. However, the greenback continued to cede ground against the Japanese Yen, as increased volatility in equity markets prompted traders to seek refuge in safe haven currencies. Meanwhile, yesterday’s NFIB report showed that morale among small businesses improved more than expected and reached its highest level in more than eight years. The report further revealed that these firms were confident about hiring and business expansion plans going forward, amid upbeat sales expectations.

Euro – European Markets

The single currency extended yesterday’s losses after a senior European Court of Justice (ECJ) Adviser ruled that the ECB’s OMT plan “in principle” abides to the EU law. Today’s ruling has strengthened hopes that the ECB might implement a bond purchase programme in the Euro zone in its upcoming policy meeting. Going forward, market participants will eye Euro zone’s industrial production data later today which is expected to show an improvement in domestic activity for November. However, the improvement is expected to be marginal and unlikely to have much impact on risk appetite among Euro investors, particularly with a snap election scheduled in Greece later this month.

Yesterday, the Euro dropped below 1.18 against the greenback, amid speculation that the ECB might ease its policy stance to stave off the deflationary headwinds in the Euro zone. Additionally, data released in Germany showed that wholesale price inflation in Germany remained in the negative territory for a seventeenth straight month which further weighed on investors’ sentiment towards the Euro.

Other Currencies – Highlights

Yesterday, the Kiwi Dollar nudged lower against the greenback in the early half of the trading session. A report by Statistics New Zealand released later yesterday revealed that electronic card sales for December declined for a second consecutive month, stoking concerns that falling global crude oil prices failed to keep domestic spending buoyed. However, the print revealed that retail expenditure excluding fuel and car sales increased marginally, particularly after spending on food and liquor grew during the Christmas break.

Going forward, market participants will keep a tab on REINZ house price data in New Zealand and retail sales numbers in the US later today for further direction. Additionally, with consumer price inflation readings scheduled in the US later this week, investors in the Kiwi Dollar-US Dollar pair are likely to remain on their toes.