The spotlight has turned back to the UK economy this morning, with the latest May CPI inflation numbers showing that consumer prices ticked higher after a brief period of deflation in April. Tomorrow, employment numbers from the UK will share market attention with the minutes of the last BoE meeting.

Across the Atlantic, homebuilders will be in focus with housing starts and building permits scheduled for release later today. Additionally, the US Fed will commence its two-day meeting today and market participants look forward to policymakers’ decision on the direction of the interest rate. Meanwhile, in Europe, concerns surrounding Greece are likely to continue to weigh on investor sentiment.

Pound Sterling – UK Markets

Sterling has lost ground against the US Dollar, despite the just released data showing that inflationary pressure returned to the UK in May, following a brief period of falling prices. The CPI data marked the first rise in consumer prices since October last year, driven by a rebound in fuel prices and partly due to a pickup in air and sea transport fares. Moving ahead, tomorrow’s employment figures are expected to show that average earnings in the private sector increased for the period between February and April. Also, the Bank of England will release the minutes of its June monetary policy meeting tomorrow and sterling is likely to react to any surprise division among policy members on the decision to leave interest rate steady.

The Pound had started the second week of June on a bearish note initially, but rebounded subsequently. Sterling extended its rally against the US Dollar and moved close to the 1.56 mark yesterday, while it traded in a close range against the shared currency.

US Dollar – US Markets

Following disappointing economic data in the US yesterday, the focus of investors today will be on housing starts and building permits data, ahead of the FOMC meeting tomorrow. Markets anticipate the pace of housing starts to ease in May after posting an exceptional gain in the previous month. Currency traders will also keep a tab on the building permits data for further insights on the outlook of the US construction sector.

The US Dollar lost ground against its major currency counterparts yesterday, surrendering its earlier gains amid mixed economic data. Industrial production in the US unexpectedly declined in May, as headwinds from a strong US Dollar and weak global demand weighed on manufacturing output, dampening hopes of expansion in the broader economy. In addition, the latest empire state manufacturing index contracted, signalling worsening business conditions in the US. However, home builder sentiment exceeded market consensus in June, suggesting optimism about the health of the housing market.

Euro – European Markets

The final print of German CPI released earlier in the day showed that consumer prices were in line with market consensus and remained unchanged from the earlier estimate for May. The single currency picked up momentum in response to the data and traded higher against its key peers. In the session ahead, focus will continue on the Euro zone’s largest economy with the ZEW economic sentiment due, which is expected to ease for June. Investors will note this indicator, especially given the ongoing slide in the German stock market and the Greek crisis. Meanwhile, gains in the Euro are likely to remain limited as concerns about Greece continue to weigh on investor sentiment. Going forward, Thursday’s Euro group meeting will be widely scrutinised after talks between Greece and its international creditors broke down during the weekend, igniting fresh fears of a Greek default.

The Euro edged higher against the US Dollar yesterday on the back of upbeat Euro zone trade data which showed that trade activity in the region improved, with surplus for April widening higher than market expectations.

Other Currencies – Highlights

Earlier today, the RBA released the minutes of its latest monetary policy meeting, wherein the central bank had opted to leave the cash rate steady at 2%. The minutes emphasized RBA’s view that a further depreciation in the Australian Dollar was needed, given the significant decline in commodity prices over the past year. The minutes also revealed that the central bank will continue to assess whether the current monetary policy stance is effective in fostering sustainable growth in economic activity and a rise in inflation level. However, the minutes failed to provide clear guidance on the central bank’s next move, thus invoking limited reaction in the Australian Dollar.

The Australian Dollar is currently trading on a weaker footing against the US Dollar. The spotlight now shifts to the FOMC policy meeting tomorrow and the direction in the Australian Dollar-US Dollar currency pair will be driven by the tone of the US Fed.