UK inflation out today could be pinnacle for Sterling

On a day with no discernible data released, and in a continuation of recent trends, yesterday Sterling managed to continue to gain against the Euro but extended losses versus the US Dollar. GBP/USD posted fresh multi-year lows amid concerns of softer UK economic growth and the impending election uncertainty, coupled with the recent broad US Dollar strength. The rate hit 1.4563 interbank before managing correct back above 1.4600 IB. The Euro was a different story, as GBP/EUR managed to break and consolidate above 1.38 IB. The inflation saga continues in the UK today as we see the release of the latest CPI data (the change in the price of goods and services purchased by consumers). The figure is forecast to be 0.0%, which would remain in line with last month’s figure – a record low. The implication is that realistically interest rates cannot be raised until inflation moves towards the Bank of England’s target of 2%, which seems unlikely to happen in the near future. Any figure above the forecast 0.0% is therefore likely to promptly benefit Sterling.

The euro was heading lower yesterday, thanks in part to a new report which indicated that Greece is unable to implement (or even offer) sufficient structural reforms. Recently Greece has locked horns with its creditors, and with increasing tensions with other member states, many economists believe that time and patience is running out for the embattled nation. The report stated that Eurozone leaders were disappointed with Greece’s lack of sufficient progress, with only six days left until it has to deliver its outlined reforms. Following the report EUR/USD fell to 1.0519 IB, just above the lowest point since 2003. Market participants are becoming increasingly weary of Greece’s ability to deliver on their promises, which is leading to concern regarding the possibility of a Greek exit, which in turn should continue to weigh on the single currency. Although Greece delivered a loan repayment at the end of last week, there is strong doubt that the country will be able to meet the remainder of its obligations. With no data released today, euro movements will likely continue to centre on ongoing news from Greece, with the single currency remaining highly price-sensitive to headlines.

Although no data was directly released stateside, the US Dollar extended its bullish momentum yesterday amid recent positive fundamental economic indicators and its safety haven appeal. Many economists are questioning if and how the current US Dollar bull-run will end. A rate hike from the FED also appears potentially imminent, as employment, inflation and GDP are all falling into line across the pond. In addition, the Greek jitters have started to gather pace as the country needs to submit the aforementioned package of reforms by the 20th in order to be assessed by EU officials prior to the final meeting on April 24th. With the words ‘Grexit’ on everybody’s lips, it seems the greenback has also benefitted from investors moving capital away from the Eurozone. Today sees higher market impact data released from the US in the form of retail sales and inflation, two broad measures of economic activity. Retails sales have been steadily declining this year, although today analysts are anticipating a positive figure of 0.7%, the highest forecast since September 2012. If the forecasts come to fruition we can expect US Dollar gains to continue and exacerbate. The PPI inflation figure is also expected to show growth not witnessed since last summer, and could even be the icing on the cake required for a FED rate hike.