The UK sees drop in inflation as Sterling weakness gradually fades
Sterling lost ground in the early part of yesterday after the BoE’s preferred measure of inflation cooled by more than expected. Inflation dropped to 2.7% in February from 3.0% a month before. The fall was in large due to the fading impact of Sterling weakness. The core rate of inflation also fell a little more sharply than expected, from 2.7% to 2.4%. It will be interesting to see how the BoE respond to this on Thursday.
Meanwhile the German ZEW slump to its lowest level since September 2016. Confidence among German investors plunged in March, sagging to 5.1 points for the month, from 17.8 points in February. The concerns over a US-led global trade conflict had made the experts "more cautious." In addition, the strong Euro was also hampering the outlook for Germany's export-driven economy
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The Day ahead
The market will be focused on two events today, the labour data out of the UK and the FOMC meeting in the US. In the UK, the labour market report will provide more colour on the extent to which wage pressures are building. In the wake of cooling inflation and Brexit developments the BoE will keep a close eye on this data as it could influence the tone of Thursday’s meeting.
Across the pond, the focus of the market will be on the FOMC meeting. The Fed is expected to increase its policy rate by 0.25% to 1.75% today, which if implemented, will be the sixth hike since December 2015. The market has already priced this in and fully expects this
As a result of some downside data releases, what guidance the FOMC will give on its policy intentions for the rest of this year is less certain. Currently the market is pricing in three rate hike in 2018, however there have been suggestions that they will upgrade this to four. The tone and rhetoric that will follow will be deciphered to second guess this.