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Today sees a comparatively quiet day from a data release perspective, with the exception of US Durable Goods Orders at 1.30pm. (Durable Goods are those planned to last for three years or more, such as motor vehicles and appliances. As those durable products often involve large investments they are sensitive to the US economic situation). If the reading is high this could well strengthen USD further and see GBP/USD threaten the 1.50 mark.

GBP/EUR continues to reflect an increased chance of further stimulus for the UK economy (and an implied reduction in the possibility of an interest rate rise) but with the Eurozone so heavily reliant on German productivity, any negative news regarding the many ’sick dogs’ of Europe could cause the Euro to depreciate rapidly. As such the current GBP/EUR levels could represent a good opportunity to sell the Euro.

The UK retail sales unexpectedly fell in April dragged down by the largest drop in food sales for nearly two years as retailers reported bad weather dented demand. The volume of sales (excluding fuel) declined by 1.4% from March. The minutes of the BoE May meeting showed the committee remained in limbo with a unanimous vote to retain Bank Rate at 0.5% and a continuation of the 6-3 voting split to maintain QE at £375bn. As it was offered no support, GBP continued to weaken on the back Tuesdays better than expected inflation data.

In testimony to the Joint Economic Committee yesterday, Fed Chairman Ben Bernanke hinted that the first reduction in QE bond purchases could occur as early as September. The minutes of the May FOMC meeting published later in the evening corroborated this possibility.

However, a reduction in the rate of bond buying does not mean that QE is ending. Instead, the Fed might cut its monthly asset purchases to around $55bn (from $85bn currently) but maintain the reduced pace well into 2014. Fed members stressed that the “pace and ultimate size” of asset purchases will depend on the outlook for the labour market and inflation.

The latest Fed comments have been broadly US dollar positive with EUR/USD breaking back below the $1.29 level. Similarly, GBP/USD weakened overnight and is down over one cent from yesterday testing the $1.50 support level early this morning.

The rate of UK inflation slowed more than forecast in April falling to a seven month low. Consumer prices rose 2.4% from a year earlier, down from 2.8% in March (the market was expecting a figure of 2.6-2.7%). The broader measure of RPI inflation fell to 2.9% from 3.3% in the previous month, the lowest since September.

Easing inflationary pressures will provide some welcome relief for the MPC and incoming new BoE governor, Mark Carney, may avoid having to start his tenure with an open letter to the Chancellor explaining why inflation is above the target’s upper bound of 3.0%. Effectively the fall in inflation makes any interest rate rises less likely and in fact increases the potential for further stimulus. The combined affect of this is a less attractive pound.

This mornings release of the Bank of England minutes offered no support for a stronger pound

Japan’s exports fell short of expectations in April widening the trade deficit. Weakness in global demand limited the growth in overseas shipments to 3.8% from a year earlier. The recent slide in the value of the Yen to a four year low against the US dollar will make Japan’s exports more competitive, however, limited demand is constraining activity and impacting on government efforts to revive the economy.

GBP/USD and GBP/EUR on the bank of the UK inflation data. EUR/USD made modest gains pushing to a high of $1.2933.

UK consumer price inflation declined in the previous month for the first time since September. British Inflation eased to 2.4 percent in April from 2.8 percent in March, official data showed today, an improved reading from the 2.6 percent rate that economists had predicted. UK core inflation declined to 2.0 percent in April – the lowest since November 2009.

Meanwhile, the Euro also edged higher against the Pound. The annual German Producer Price Index increased 0.1% in April, down from the 0.4% growth in March, according to official data published today. Also, on a monthly basis, Producer Price Index fell 0.2% in April, after dropping 0.2% in March and slightly below expectations of -0.1%.

Sterling gained against the Dollar after a report showed UK housing prices have increased for a fifth successive month. The Pound rose from near the lowest level in six weeks versus the Dollar. House prices increased 2.1 percent this month.

Meanwhile, the Euro remained unchanged versus the Dollar in the higher end of the range after the Italian industrial sector posted diverse results during March. Industrial sales shrank 7.6% while orders dropped 10%.

Also, US factory output declined and the motion in the housing sector eased. Progress in the jobs market also weakened as new claims for unemployment benefits rose with the balance of news releases adding to concerns over the impact of planned US government spending cuts. Despite the downbeat US data, the Dollar proved to be fairly resilient posting gains against the Euro and Sterling over the week.

After a strong couple of weeks for USD US inflation fell for the second consecutive month in April, the first back-to-back monthly declines since late 2008. CPI inflation decreased by 0.4% on the month dropping the headline annual rate to 1.1%. Falling gasoline prices were the main driver of the retreat in inflation, the largest monthly decline since December 2008. Low inflation bolsters the case for the Fed to maintain the current $85bn per month QE stimulus programme. Recovery in the US job market recovery stuttered as the numbers filing new jobless claims climbed at the fastest pace in six months. Initial claims for state unemployment benefits jumped by 32,000 to 350,000 in the week ended 11 May, much higher than the consensus view. Also in the US, manufacturing in the Philadelphia region unexpectedly contracted in May for the first time in three months as new orders declined. The index slipped to -5.2 from 1.3 in the previous month.

Further downbeat news for the US came from the housing market as new home starts fell to a five month low in April. Housing starts slumped by 16.5% to an annualised rate of 853k, indicating an easing in progress as builders slowed work on apartments. One positive development in the data release was the volume of new building permits which surged to an almost five year high.

The weaker than expected US data weighed on the US dollar helping EUR/USD hit a high of $1.2929 with GBP/USD up to $1.5322. The dollar’s loses were later reversed after a Fed official indicated the US central bank could begin to wind down its bond buying programme as soon as the end of the summer.

Eurozone GDP shrank by 0.2% in the first quarter of the year keeping the region in the longest recession since records began in 1995. Germany, the largest economy in the region, avoided recession but only managed a modest 0.1% growth. By contrast, France fell back into recession with a 0.2% decline, while Italian output contracted by 0.5%. The diverging fortunes of the three largest economies within the Eurozone highlight the issues faced by the ECB.

The UK labour market continues to paint a mixed picture. ILO unemployment rose by 15k to 2.52 million in the three months to March, while the jobless rate eased by 0.1% to 7.8%. In addition, there was a 7.4k fall in claimant count unemployment in April.

Japan’s economy expanded at the fastest rate in a year during Q1 as GDP rose at an annualised 3.5%. Consumer spending and export gains outweighed the weakest business investment since the March 2011 tsunami. This growth suggests the economy is shaking off the stagnation seen last year and is responding to the government’s stimulus plans.

EUR/USD slipped to a six week low of $1.2842 after the weaker than expected GDP raised expectations of further monetary easing by the ECB. Sterling also made gains against the euro breaking through the €1.18 level to a high of €1.1855.

The Pound strengthened against the Euro after official data showed UK unemployment claims fell in April by 4.5 percent, the highest fall since April 2011, indicating that Britain’s economy is on the road to recovery. In other news, economists expect the Bank of England to predict that inflation will rise to its highest at 3.0 percent later this year and the BoE to accelerate the date of expectation of inflation to return to the 2 percent target.

Whereas, Germany’s economy increased weaker than expected, after a steep decline in the last quarter of 2012, while France fell into recession. Germany increased by only 0.1 percent. France has entered its second recession in four years after the economy shrank by 0.2% in the first three months of the year. Revised figures in the last quarter of 2012 showed a decline of 0.7 percent from 0.6 percent, according to the German statistic office.

The Pound dropped against the Euro in anticipation of Germany’s ZEW monthly sentiment survey;  it is expected to show optimism in Europe’s largest pick up in May, it is predicted to rise to 38.3 in May from 36.3. Also, industrial production in the euro area increased 1% in March above expectations for a 0.4% rise, for the second month again, easing concerns over the outlook for growth in the Euro zone.

In the UK, an industry report showed U.K. house prices rose to the highest level in three and a half years, last month. The Royal Institution of Chartered Surveyors (RICS) announces its house-price index increased to 1 from minus 2 in March, this was supported by a new government scheme to help boost the housing sector. However, this positive news has failed to support GBP versus EUR and USD.

Business confidence is on the rise across most of the UK, although manufacturers are less positive. Growth forecasts holds steady this year at 1% by the Confederation of British Industry. Also, the accountancy firm, BDO stated that business confidence improved in April, mainly in the service sector.

The Euro is near to one-month lows against the Dollar on Monday as the U.S. economic outlook is indicating that the Federal Reserve may decrease its quantitative easing program. This potential decrease has made the dollar more attractive all round, hence we have also seen the GBP/USD rate fall from its recent highs.

The US data week will release with last month’s retail sales figures today. Economists’ expect the data to show that sales fell 0.3%, following a 0.4% decline in March.