Inflation in the UK Enters Negative Territory
The latest UK inflation data showed that the consumer price index declined on an annual basis for April, missing market expectations that prices would remain unchanged. The CPI reading was in line with last week’s quarterly inflation report from the BoE, which had predicted prices to fall into negative territory in the near term.
A slew of CPI numbers this week from other major economies will attract market attention. Today, market participants will eye housing starts in the US and Euro zone’s final consumer price data along with the ZEW surveys.
Pound Sterling – UK Markets
The just released data showed that Britain entered into deflation territory for April, with consumer inflation falling below zero. UK CPI is at the lowest level ever recorded and the dip into negative cost of living terrain was due to a drop in food prices and the timing of the Easter holidays impacting air and sea fares. Last week, the BoE Governor, Mark Carney indicated that he expects inflation to temporarily turn negative in the near term, although he reiterated that prices will start picking up again later this year as the negative effects from energy and food prices fade. Additionally, the core measure of consumer prices dropped to multi-year lows for April. The Pound has lost ground against the US Dollar following the release of the dismal inflation data.
Yesterday, the Pound edged higher against the US Dollar as economic releases in the US continued to disappoint.
US Dollar – US Markets
The US Dollar edged higher against the major currencies yesterday. In addition, the Euro- US Dollar currency pair traded close to the 1.12mark, as worries about Greece continued to weigh on the shared currency. In the US, the NAHB’s homebuilder sentiment index dipped unexpectedly for May, marking the fourth monthly decline in the last five months. Going forward, market participants will eye more housing data this week, including April's housing starts and building permits, data on mortgage applications and existing home sales numbers to gauge the strength of the US real estate market.
Elsewhere, the Chicago Fed President Charles Evans reiterated his call that interest rate should remain steady till the next year, while allowing inflation to rise above the central bank’s target. However, he added that the US Federal Reserve could consider raising rate in June if the economy is strong enough.
Euro – European Markets
The Euro retreated from its recent monthly highs against the US Dollar yesterday, as the single currency came under pressure from renewed concerns that Greece may miss its debt repayments next month. The long-running talks between the Greek government and its troika of creditors continue without any breakthrough, thus mounting fears that defaults on loans could force Greece out of the Euro zone.
Extending its losses, the Euro has slipped below the 1.12 mark against the US Dollar. Data scheduled for release today include the German and Euro zone ZEW surveys along with Euro region’s trade balance and consumer price data. The final CPI print of the Euro zone, due in a few hours is likely to confirm that the region recovered from deflation during the previous month. Today’s ZEW data will be closely monitored for cues on the region’s economic prospects for the second quarter.
Other Currencies – Highlights
The minutes from the Reserve Bank of Australia’s (RBA) recent monetary policy meeting indicated that the central bank has left the door open for further rate cuts; however it refrained from giving guidance on the future path of monetary policy. The minutes of the meeting that saw RBA slash interest rate to a record low of 2%, offered hardly any new information on the economy. However, it did acknowledge the subdued labour market conditions and the weak capital expenditure in the nation which has dampened the outlook for inflation. The minutes also noted that further depreciation in the Australian Dollar was needed, given the significant decline in commodity prices. The Australian Dollar weakened against the US Dollar, following the release of the minutes. However, the Aussie has recovered part of its losses with focus now shifted to key global macroeconomic indicators, due today.
Following today’s RBA meeting minutes, market attention will now be on Australia’s consumer inflation expectation data, later this week, for further cues on the direction of interest rates in the nation.