Inflation holds at 0% for a 2nd month in a row

Yesterday witnessed a busier day on the economic calendar for the UK. Starting with inflation, the rate is sustained at a record low of 0%, according to the ONS. Cheaper clothing and footwear, offset by a rise in petrol prices, helped to maintain this level of inflation for a second month in a row. Supposedly, inflation should start to pick up in the second half of the year, especially as the downward pressure from lower oil prices eases. Furthermore, Producer Price Index (PPI) witnessed a positive uplift of 0.3% in March which echo’s more mixed signals for the recovery of the UK economy. Sterling tried to creep back up to 1.40 Interbank (IB) as yesterday the pairing moved in over a 100 pips range and posted a high of 1.3923 IB in early morning trading. Unfortunately, this level wasn't sustained and retraced back to the 1.38’s IB for the remainder of the day when poor inflation data was released. It will remain quiet for the UK calendar until Friday when we see the release of unemployment which is set to marginally improve to 5.6%. The likelihood of this event being priced into the market is very high. However, if this sector misses the consensus we might see some Sterling weakness.

The only release worth mentioning from yesterday’s session is Industrial Production for month-on-month (MoM) which finally brought some positive news to the struggling economy, producing a figure of 1.1% from a previous -0.3% which is a compelling difference from February’s figures. This added some fuel to the euro and it made a big move against the Greenback, increasing in value by 1.5%, and peaking to a daily high of EUR/USD 1.0707 IB.
President Mario Draghi will deliver updates on interest rates (likely to remain at record lows) and the ECB's quantitative easing program in a lunchtime press conference today. He could well be asked to defend the €1.1trn asset-buying program amidst raised growth expectations for the eurozone. The IMF says risks to growth are more balanced than six months ago, but remain tilted to the downside. Macroeconomic risk has declined, but financial risks and geopolitical risks have increased. More importantly, they urge a continuation of very low interest rates to support economic activity and lift inflation expectations.

Across the Atlantic, the Americans witnessed some poor data releases which reflect in dollar weakness for a change in the short-term. Both Core Retail Sales and Retails Sales failed to achieve expectations by a minimum 0.1% In addition, PPI dropped 0.1% from the forecast 0.3% to add more fuel to the fire. The pound fell almost half a cent against the dollar, caused by the UK inflation news, dropping to GBP/USD 1.4611 at one point, before recovering to GBP/USD1.4785 IB to close the London session when the negative US data was released.
Consumer Price Index and Consumer Sentiment data will be released on Friday which should create volatility in the market if there are any surprises to the consensus figures released.