UK Inflation Rate Continues to Fall
Following last week’s BoE quarterly inflation update where the central bank lowered its near term inflation forecast, today’s easing in Britain’s inflation reading came as no surprise. With the core inflation measure holding strong, led by robust wage growth, market participants will keep tabs on tomorrow’s labour market report to ascertain if spare capacity in UK’s jobs market continues to ease.
In the Euro zone, Greece’s failure to reach an agreement with its international lenders in yesterday’s Euro group meeting has heightened concerns of a Greek exit from the bloc. Today, traders will eye the ZEW sentiment survey in the Euro zone for further direction. Across the Atlantic, the NAHB survey is anticipated to show that optimism among home builders strengthened for February.
Pound Sterling – UK Markets
Data just out has shown that consumer price inflation in the UK eased for January and registered its third consecutive drop, as cheaper oil continued to weigh on domestic price growth. Meanwhile, Britain’s core inflation measure picked up unexpectedly last month, strengthening hopes that an upward pressure in wage growth is offsetting the impact of weak energy prices in the nation. Traders will continue to eye UK inflation reports for the subsequent months closely, especially after the BoE in its latest quarterly inflation update lowered its short term forecast last week. Moving ahead, the minutes of the BoE’s most recent policy meeting along with the official UK labour market print will attract significant attention among investors tomorrow. The latter will be scrutinised to gauge the spare capacity in UK’s jobs market and verify if growth in wage earnings continues amid the downward trend in the nation’s headline inflation rate.
Yesterday, the Pound recovered its early session losses against the Euro after the meeting between Greece and its creditors finished in disarray.
US Dollar – US Markets
Yesterday, the US Dollar climbed against the Euro as traders shunned the single currency amid fears of EU policymakers failing to reach an agreement with Greece to extend the country’s bailout deal. However, trading volumes remained low with the US markets closed on account of Presidents' Day holiday. On the macro front, last week’s downbeat economic data from the US, including retail sales and the Reuters/Michigan consumer sentiment, has dampened sentiment and raised speculation that the US Federal Reserve may delay the rise in interest rate, despite the recent strength in labour markets.
The greenback is trading in a tight range against its key peers this morning. Going forward, market participants will closely watch data related to the housing sector in the US, starting with the NAHB housing market reading for February scheduled later today. Data released last month had revealed a modest decline in homebuilder sentiment for January. Several other housing related reports are on tap later this week, including building permits and housing starts for January scheduled tomorrow.
Euro – European Markets
The single currency slipped against its major peers during the course of yesterday’s trading session as talks between officials from Greece and the EU collapsed. The Euro zone finance ministers refused to cede ground after the newly elected Greek government rejected a proposal for a six month extension for the current bailout. Going forward, trading in the single currency could witness high volatility amid persistent uncertainty about Greece’s stay in the Euro bloc. On the macro front today, the trend in the currency markets could be influenced by the ZEW’s economic sentiment survey data from the Euro zone and Germany, scheduled later today. Markets anticipate an improvement in economic sentiment in both the Euro zone and its largest economy, largely aided by improving private sector activity and accommodative policy measures embraced by the ECB.
On the economic front, yesterday’s data showed that Euro zone’s seasonally adjusted trade surplus widened for December largely aided by plummeting energy prices and a weaker Euro.
Other Currencies – Highlights
The Australian Dollar, which was trading lower against the greenback this morning rebounded after the Reserve Bank of Australia released the minutes of its last monetary policy meeting. While the minutes were similar to the RBA policy statement that had was released soon after the meeting, what lent strength to the Aussie was the concern that the central bank showed about the strength in house prices. The RBA further indicated that it would keep a close watch on developments in the housing market. The central bank had cut its cash rate by a quarter point to a low of 2.25%, citing deteriorating growth and employment outlook. The RBA provided no hints that the last cut was a part of a new easing cycle.
Today, investors will keep a tab on the Australia’s CB Leading indicator for December which is expected to further substantiate that growth in the economy remained sluggish during the period.