The just out UK CPI data has surprised the markets and led the Pound lower against its peers. Data revealed that consumer prices fell again into negative territory for September, dragged down by falling petrol and diesel prices. Tomorrow, Britain’s labour market report will likely shed further light on the nation’s macroeconomic outlook.

In Europe, German inflation remained flat as previously estimated for September and in line with market forecasts. The only other major macro pointer today will be the ZEW survey which will be closely watched for clues to the health of Euro zone’s biggest economy. In the US, investors will eye the release of NFIB’s optimism index for small firms.

Pound Sterling – UK Markets

The Pound has faltered against the US Dollar this morning after just released data showed that the UK economy moved back into deflationary territory for the second time this year, confounding expectation of the inflation rate to remain flat at the headline level. The core measure of inflation, on an annual basis, unexpectedly slid lower in September. The dip into deflation last month could be attributed to a renewed decline in the energy prices as well as clothing and footwear prices. Today’s CPI update is in line with the BoE’s recent remarks that inflation would remain lower for a longer term, citing a renewed slump in oil prices. The weak inflation print is likely to ease any pressure on the BoE to raise its benchmark interest rate from the record low any time soon. At the last MPC meeting, only one of the rate setters, Ian McCafferty, voted to raise rates from 0.5%

Earlier today, a survey by the British Retail Consortium revealed that UK retail spending bounced back in September as lack of price pressures and recovery in wage growth encouraged households to boost spending.

US Dollar – US Markets

The greenback is looking for direction against the Euro this morning. With little significant data in the US docket, currency traders will keep a tab on economic updates in the other major economies for direction. Later in the day, the National Federation of Independent Business will publish a survey report which would show the extent of optimism among small business owners in the US regarding the nation’s economic outlook. The group’s sentiment index has remained near its highest levels since the US recession ended in mid-2009. But expectations are for today’s reading on NFIB’s index to show that small business owners were a little less upbeat in September which could be attributed to the stronger headwinds that the US economy faced triggered by slowing growth in China and other emerging markets last month. In addition, the US Government is scheduled to release its monthly statement of receipts and outlays later today.

The Pound – US Dollar currency pair traded mostly flat in yesterday’s trading session, amid a quiet trading day and no major economic releases out of the UK.

Euro – European Markets

Earlier today, the Euro had slipped below the 0.74 mark against Sterling after the final CPI print confirmed the absence of pricing pressure in the Euro zone’s largest economy. As widely expected, the consumer price index showed no change for September primarily as a result of a renewed slide in energy prices. However, the EUR has rebounded against the GBP post the release of dismal inflation figures in the UK. Another report showed that wholesale prices in Germany continued to decline for September. Today’s CPI update is likely to have fuelled concerns about the macro outlook for Germany.

Last week had seen a string of disappointing economic reports in the German economy for August which suggested that Europe’s biggest economy is facing significant headwinds from weakening global demand. In a few minutes, Germany will see the release of its ZEW survey on economic conditions for October, with the ZEW indicator expected to deflate from the previous print. A more than expected decline will likely reinforce opinion that the German economy was impacted by slowing growth in China.

Other Currencies – Highlights

The Japanese Yen is currently trading on a stronger footing against the US Dollar. Investor focus remains on the Fed and BoJ’s stance and future course of monetary policy action, with markets looking for signs when the BoJ might further expand its aggressive easing measures or when the US central bank would normalise its interest rate policy. The BoJ minutes of the September meeting released prior to the Tokyo opening session today offered no clarity to whether the central bank is leaning towards further easing any time soon. However, the minutes emphasised that Japan’s economic recovery is on track, although exports and production continue to be impacted by the slowdown in emerging economies. The minutes also indicated that inflation is expected to rise over a longer term and that the current dip in price pressures was temporary due to a decline in energy prices.

In separate data, consumer confidence in Japan ticked lower than market expectations last month. Also, preliminary print showed Japan’s machine tools orders were sharply down for September.