Inflation hearings this morning likely to be pinnacle for Sterling

Yesterday we saw no discernible data released and little movement in the currency markets, although Sterling did manage to gain ground against the US dollar ahead of the influential inflation hearings this morning. The recent Bank of England meeting highlighted deflationary pressures alongside a downward revision of UK growth forecasts, and the inflation hearing at 10.00am is likely to reiterate these points to the detriment of Sterling. The only saving grace could be a reversal in Bank of England forecasts following the marginally above analyst-anticipated inflation reading last week. If the BoE sentiment remains sour and downside risks become apparent then interest rate changes could be severely impacted. Indeed, last week a number of banks and analysts pushed the UK rate hike expectations back – with a rate hike now looking unlikely until 2016. The only other data released today from the UK is BBA Mortgage Approvals at 09.30am, but post-inflation engagement today market participants will be eyeing the UK GDP release on Wednesday.

The Euro made gains against most of its major counterparties yesterday following positive German data in the form of Ifo Business Climate, which printed above estimates. The data was even more influential owing to the fact that Germany remains the eurozone’s biggest economy and has been struggling in the last few months. When coupled with the positive German economic sentiment last week it puts the powerhouse economy back on track. However, fundamentally the future is looking bleak for the uro following Mario Draghi's latest announcement. The ECB president has once again insisted the central bank will do whatever it takes to stimulate the eurozone economy and it seems that asset purchasing is the next weapon in his arsenal. Quantitative easing is by its nature designed to weaken a currency, and the decision to increase asset purchases by the ECB will create further weakness for the single currency.

The US dollar lost ground against most majors yesterday as we head into US Thanksgiving week. This situation could easily reverse with the release of the US GDP figure today – which is expected to show a drop from 3.5% to 3.3%. The planets seem to be aligning for a rate hike in the US, with inflation above analyst projections and surprisingly good manufacturing data from the Philadelphia Fed last week. When the current positive employment situation is factored in, an above estimate GDP today figure could be the icing on the cake and prompt calls for a rate rise. The immediate prospect for monetary tightening from the Federal Reserve alongside the economic woes in Europe and Japan, are likely to attract investors to the dollar for the foreseeable future. Other discernible data released today Stateside comes in the form of the CB Consumer Confidence at 15.00pm.