The just released CPI data showed that inflation slipped back to zero in the UK in June, as early summer discounting by retailers pushed prices lower. The latest inflation print could well put a damper on expectations of any near term rise in interest rates. Going forward, investors will closely monitor Britain’s labour market data tomorrow, which is expected to show a further improvement in pay increases.

Across the Atlantic, retail sales figures will offer more perspective in analyzing the Federal Reserve’s stance on monetary policy. In Europe, data indicated that inflationary pressure softened in Germany while the Spanish inflation rate climbed back to positive territory for the first time this year. Investors will continue to track developments in Greece, which are anticipated to continue to dominate market headlines.

Pound Sterling – UK Markets

The just released data indicated that domestic inflationary pressures remained benign last month, dragged down by food and clothing prices. Official figures showed that, as widely expected, consumer price inflation eased back to zero in June, falling back from a level of 0.1% witnessed in May. With inflation remaining far below the Bank of England’s 2% target, there is hardly any pressure on the nine member monetary policy committee to raise interest rates in the near term from a record low of 0.5%. The Pound is trading lower against the US Dollar, following the economic release. Meanwhile, data released by the BRC earlier today showed that retail sales in June surged higher as warm weather boosted clothing sales. The sharp increase was also partly due to a weak performance by the UK retail sector in June of last year.

The Pound gained traction against the Euro yesterday. In its credit conditions survey for the second quarter, the BoE indicated a sharp jump in mortgage applications following three quarters of decline. A positive outlook for the housing market augurs well for second quarter growth.

US Dollar – US Markets

The US Dollar is trading on a weaker footing against the Euro this morning, ahead of a set of notable economic releases in the nation this week, starting with retail sales scheduled later today. With consumer spending accounting for approximately two-thirds of overall economic activity in the US, today’s update on June retail sales will be noted to gauge the level of optimism among consumers. Markets anticipate that retail sales in the nation will rise modestly for June, compared to a rebound witnessed in May. However, if the retail sales report shows a surprise upside for June, it is likely to trigger a rally in the greenback. The NFIB’s latest update on sentiment among small-business owners later today will also be in focus. Today’s update for June is expected to support an upbeat outlook for the ongoing recovery in the small business sector.

Yesterday, the US Dollar recovered most of its early losses against the Euro. In economic data, the US budget surplus for June was marginally ahead of consensus estimates.

Euro – European Markets

Data released earlier today indicated that there is little inflationary pressure in the single currency union. The final print of Germany’s CPI confirmed that the annual inflation rate slowed sharply for June, compared to a year ago, impacted by a sharp drop in energy prices. Additionally, Spain emerged out of an extended period of deflation, with the inflation rate clocking 0.1% in June. The Euro has recovered part of its losses against the major currencies, post release. In the session ahead, trading in the Euro could be influenced by the German ZEW economic sentiment survey and the Euro zone industrial production figures for May.

Yesterday, Greece and its international creditors principally agreed to a third bailout deal in a bid to ensure the nation’s future in the Euro bloc and avoid a financial crisis. However, the shared currency trimmed most of its gains against its key peers. The cash strapped nation now faces a raft of austerity measures, including sales tax rise and pension and labour reforms. Meanwhile, the bailout is still dependent on the Greek parliament’s approval of reforms, which is required by tomorrow.

Other Currencies – Highlights

Following yesterday’s weakness, the National Australia Bank’s (NAB) upbeat business survey report released earlier today boosted the Aussie, with the Australian Dollar–US Dollar currency pair retracing back to the 0.74 mark. NAB’s June business survey showed that business confidence climbed to the highest level since September 2013, supported by an improvement in business environment conditions. A continued rise in optimism and improving conditions during recent months suggests that business sectors excluding the mining sector might be staging a recovery. However, the survey showed that the pace of hiring in Australian firms remained very subdued, adding further pressure to the nation’s unemployment rate. The survey also confirmed weak investment spending among businesses.

With no further notable releases on the domestic macroeconomic front today, investor focus will shift towards the key US retail sales data, scheduled later today, for direction in the currency pair.