Inflation data dominates focus in markets across the globe today. This morning, the December annual reading for UK headline consumer price inflation came in line with market expectations of an improvement from the previous month. However, the inflation rate continues to hover close to zero, with low oil prices and a supermarket price war keeping prices in check for consumers. Going forward, if tomorrow’s UK labour report fails to show acceleration in wage growth then it is likely that the expectations for the Bank of England (BoE) policy tightening are going to be pushed further back.

In a short while, final CPI Euro zone figures are due. Expectations are for the Euro area inflation rate to remain steady at just 0.2%, a long way off the European Central Bank’s desired target. Across the Atlantic, NAHB housing market index will be out today.

Pound Sterling – UK Markets

Sterling has extended its earlier gains against the US Dollar this morning after the just released UK inflation numbers highlighted the concerns surrounding weak price pressures in the nation’s economy. Data as predicted showed signs of some recovery in CPI against the backdrop of low oil prices and a supermarket price war that has forced the retailers to slash prices and introduce discounts. Consumer prices excluding the effect of energy costs rose above estimates for December, but inflation still remained well below the BoE’s desired 2% target. The numbers suggest that the UK economy ended 2015 with lack of inflationary pressures, thus underlining the BoE’s recent rhetoric about the prospect of a rate rise. Looking forward to the New Year, traders are likely to remain concerned about the inflation outlook given the renewed slump in oil prices this year.

The nation still has several notable key reports due in the coming days, including average earnings and unemployment claims tomorrow and UK retail sales on Friday that could trigger volatility in trading in the Pound against the major currencies.

US Dollar – US Markets

The US Dollar is trading mixed against the major currencies this morning, amid a light US economic calendar for a second consecutive day. A combination of downbeat US construction spending data, reported earlier in the month, bad weather early in January and the commencement of the Fed’s rate rise cycle are anticipated not to have had an adverse impact on builder sentiment as measured by the National Association of Home Builders. The reading is expected to remain at a level indicating a healthy US housing market. Any surprise, however, will grab significant market attention, being only the second release related to the housing market in the New Year. This data will be followed by the release of housing starts and building permits in the US tomorrow. Separately, US consumer price inflation data which has a key influence on the Fed’s interest rate decision will be eyed tomorrow by currency traders for further direction.

The greenback traded mixed against its major currency counterparts yesterday, with trading in the local currency being subdued due to no major economic releases on account of a bank holiday in the US.

Euro – European Markets

Earlier in the day, the Euro – US Dollar currency pair failed to latch onto the 1.09 mark and squandered most of its gains. On the macroeconomic front, it is a busy day in Europe with upcoming news from Germany and Euro zone anticipated to disappoint markets and hence likely to weigh on the common currency. The final Euro area CPI reading for December, scheduled in a short while, is expected to confirm that consumer prices failed to rise as oil prices started to sharply slide down from the end of last year. Although the decline in energy prices will likely encourage consumption in any case, it increases the pressure on the European Central Bank (ECB) to again act or at least provide signs of further easing in the coming months to boost the economy. Also on tap is today’s German ZEW investor expectations data.

This week, the ECB officials are scheduled to meet. Though not much is expected at this January meeting, the subsequent ECB Chief’s press conference could attract particular interest for hints about the central bank’s next course of action.

Other Currencies – Highlights

The New Zealand Dollar edged higher against the US Dollar today as a recovery in oil prices lent support to the commodity currency. Moving ahead, the focus of currency traders will shift towards New Zealand’s consumer price inflation data scheduled for release later today. This data follows last week’s food price index which indicated that food prices in the nation fell in the last month of the previous year. Additionally, downbeat ANZ commodity price data and electronic card retail sales data for December released earlier in the month have added to fears of deflation in the fourth quarter. Also, traders will eye the NAHB housing index in the US later in the day as US markets resume trading following a public holiday.

The Kiwi Dollar traded slightly higher against the US Dollar yesterday after a survey showed that confidence levels among the nation’s businesses bounced back in the final three months of last year as a result of a pick-up in the economy.