The just out Britain’s CPI data indicated that the headline inflation rate rose unexpectedly for July as a core measure of price growth climbed to the highest in five months. However, domestic price pressures remain subdued, suggesting that the UK monetary policy committee will be in no hurry to raise interest rates. The BoE Governor had recently remarked that near term outlook for inflation remains muted.

Across the Atlantic, a pair of US economic releases later today will shed light on the US housing sector and will be followed by the weekly release on consumer spending based on the Redbook Index.

Pound Sterling – UK Markets

The just released UK CPI recorded a rise in July, confounding market forecasts for a flat reading. Even though the headline reading for UK inflation has edged higher than market estimates, the inflation rate still remains well below the Bank of England’s desired 2% target. However, a multi month rise in core CPI numbers holds up hopes that the BoE is on course to normalize its monetary policy next year. The last BoE inflation report had revealed that most policymakers are not eager to raise interest rate just yet and a modest rise in consumer prices for July reinforces the view that the UK central bank is unlikely to change its stance in the near term. Additionally, producer input prices fell less than expected for July, despite a recent slump in commodity prices, and retail price index slipped into negative territory in line with market consensus. Sterling has extended its gains and is trading on a firmer footing against its major currency counterparts this morning, post the economic releases.

Going forward, an upbeat retail sales report due later this week could spur some gains in the Pound against its key peers.

US Dollar – US Markets

The US Dollar trimmed its losses against the shared currency in yesterday’s trading session after NAHB’s housing market index inched up to its highest level in almost a decade, consistent with market expectations for August. The NAHB report indicated that gains in US payrolls and an upbeat US economy were likely to lead to the US housing market growing at a moderate pace for the remainder of the year.

Investors will keep a tab on today’s residential market related releases including housing starts and building permits data to gauge whether these provide similar optimism as displayed by NAHB’s numbers. Markets anticipate the housing starts print to show a moderate improvement for July, while the number of permits for new construction projects is projected to slide during the period. In separate data, a positive surprise on the Redbook index, which measures comparable store sales at retailers on a weekly basis, could add to further evidence that consumer driven recovery in the US economy is continuing at a healthy pace at the beginning of the second half of this year.

Euro – European Markets

The Euro – US Dollar currency pair is trading below the 1.11 mark, amid an absence of any major macroeconomic indicators in Europe to trigger volatility in the pair. The upcoming US Fed minutes are likely to provide further cues on direction of interest rates in the US and have added to downward pressure on the common currency against the US Dollar. Going forward, trading trends in the Euro region are likely be determined by construction output and current account data in the Euro zone, slated for release tomorrow.

Meanwhile, Greece’s debt problems continue to be the key concern in the Euro bloc. The constant chatter from the cash strapped nation regarding a confidence vote and possible snap elections this year has made it difficult for the Athens government to implement the necessary measures required to secure the third bailout deal which was agreed upon with its European creditors earlier last week. The Greek government needs to secure a start to funding from its foreign creditors, so that it can make a debt repayment to the ECB later this week.

Other Currencies – Highlights

The Australian Dollar inched higher against the US Dollar, after minutes of the last monetary policy meeting in Australia revealed that low borrowing rates and a weaker Aussie Dollar have worked together to help the economy to recover from the sharp drop in commodity prices. The RBA, in its August board meeting minutes, stated that a lower home currency had made a strong contribution to growth in the nation’s net service exports over the past year, while weak Chinese demand accounted for lower iron ore exports. With continuing weakness in commodity prices and a relatively upbeat account by the RBA this morning, traders will now await further hints about the stance of the Australian central bank in its next monetary policy.

The Aussie Dollar has reversed its early gains and is trading on a weaker footing against the greenback, with currency traders awaiting cues on an interest rate rise in the US ahead of the US Fed minutes tomorrow.