Negotiations to permanently secure Britain’s place in the Euro bloc remain in the balance as overnight discussions at Thursday’s summit ended without any form of a deal. An agreement before the end of this weekend would allow the UK Prime Minister to set the referendum at his preferred time of mid-June.

Amongst today’s economic data releases, the just out UK retail sales data rose more than expected in January, reinforcing the belief that consumer spending will drive growth in the economy. Additionally, the public finance figures indicated that UK accounts ended the year in surplus. Across the Atlantic, investor focus today will be on the key report on US consumer prices where annualised CPI is expected to rise for January.

Pound Sterling – UK Markets

The Pound dropped again against the shared currency this morning, amid growing uncertainty as all-night negotiations between the EU Leaders and the UK Prime Minister did not lead to a deal. Reports revealed that David Cameron faced a lot of resistance from the EU partners in the summit who were determined to limit concessions on offer to help keep Britain in the Euro bloc. Talks have resumed again and an agreement is still expected before the end of the two-day summit later today which will lead to a referendum on EU membe rship as soon as June.

On the macroeconomic data front, just released data showed that the UK retail sales growth bounced back strongly last month, after an unexpected fall in December. Data showed that the UK retail sales growth was the highest in more than two years for January on the back of a surge in demand for clothing and computers. The overall retail sales growth trend has added to signs that consumers continue to be the backbone of the UK economy. In separate data, UK public accounts recorded a smaller than expected surplus in January.

US Dollar – US Markets

The US Dollar is trading on a stronger footing against the Pound this morning, ahead of a much awaited US data release in the form of the nation’s inflation rate for January. The US CPI is anticipated to have fallen in January, at a similar rate as December, as a decline in oil prices are likely to have acted as a persistent deflationary force. While the core price growth rate is expected to have eked out a small gain last month. The numbers are unlikely to have any effect on the Fed’s decision when it meets in March. The minutes of the next month’s meeting will reveal whether the Fed was more worried about the lack of inflationary pressures in the nation or the weakness in global financial markets and the overall economy.

The US Dollar ended modestly higher against the majors yesterday on the back of upbeat US economic reports. A weekly update on first time unemployment benefits in the US unexpectedly dropped in the previous week, the lowest reading since November 2015, signalling labour market strength. Separately, Philadelphia Fed's manufacturing index came in better than expected for February.

Euro – European Markets

The shared currency has trimmed part of its earlier gains against the greenback this morning after data showed that German producer prices fell more than expected in January. The German factory gate prices contracted as energy prices continued to put forth downward pressure on the index. On an annual basis, the German producer prices index contracted for a thirtieth straight month in January, adding to the already existing concerns over deflation in the Euro zone. Later in the day, the Euro zone’s preliminary consumer confidence index might attract some market attention.

The Euro traded on a weaker footing against the US Dollar yesterday after the minutes of the ECB monetary policy meeting, held in January, showed that policymakers were concerned about the increased risks to the global economic outlook and inflation in the New Year. The meeting minutes reaffirmed that the central bank was considering the possibility of pushing the interest rates further into negative territory at the next policy meeting in March to bring inflation rate close to its desired target.

Other Currencies – Highlights

The Canadian Dollar continues to trade on a weaker footing against the US Dollar today as oil prices remain volatile. Also, the greenback seems to be recovering from the dovish minutes of the January FOMC meeting and Fed members comments that have pushed back the possibility of an interest rate increase in the upcoming March meeting. In other news, the Organisation for Economic Co-operation and Development (OECD) published the latest growth forecasts for economies across the world. The OECD slashed Canada’s growth estimate by the most of any major developed economy this year due to its increasing reliance on commodity exports.

On the data space, Canada’s consumer price inflation (CPI) report will be simultaneously released with the nation’s December retail sales later today. Expectations are for the core prices to rise in January, while falling energy prices could act as a significant drag on the headline CPI index. Separately, stronger retail sales in Canada for November are anticipated to have been pulled down at the end of last year.