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Oil-based inflation threat, and Osborne weighs in on the referendum

Oil-based inflation threat, and Osborne weighs in on the referendum

A quiet data day on Friday saw Sterling look towards market sentiment for guidance, which is to be repeated today. With no data being released, the market will focus on the EU referendum ahead of Mark Carney’s talk tomorrow afternoon. As Friday saw the official start of ‘Brexit’ campaigns, UK news will be dominated by arguments for both sides of the coin.

This morning in the Times, Chancellor George Osborne has not held back. He claims that Britain would be worse off to the tune of £4,300 per household per annum if Britain votes to leave the European Union. This data comes from “rigorous analysis” carried out by the Treasury on the long-term costs and benefits of EU membership. The 200-page document laying out the case for remaining within the EU will be published today, and will likely be replied to by the ‘Leave’ campaign. GBPUSD has already reacted negatively to these headlines, showing losses this morning.

The Dollar fell across the board on Friday, as soft economic data and sliding oil prices weighed on the Greenback. Industrial production fell by 0.6% for March, against the market consensus of a 0.1% drop. The University of Michigan consumer sentiment survey also undermined Dollar strength as the report showed a reading of 89.7 for April, compared with a forecast of 92. The Dollar index, which tracks the currency against six of its major rivals, posted a loss on Friday after two days of gains previously.

Cable opened on Friday at 1.4156, as the Dollar weakness caused the pair to trend upwards to hit a daily high of 1.4242. The Dollar bulls did manage to push the pair down from the highs – the pair opened today at 1.4204.

The Dollar also lost ground against the Euro on Friday. EURUSD had opened at 1.1265 and traded flat into the US economic data releases. The soft readings caused EURUSD to make a move higher in the American trading session, and the pair opens this morning at 1.13098.

The Euro is fundamentally bearish but has been trading neutrally for the last week. Inflation figures last week showed that inflation levels were holding steady and there was a modest increase in “core inflation”. As no agreement was made in Doha to reduce oil output, oil prices could drop again and drag inflation down with it.

The main focus for the Eurozone this week will be Thursday’s Interest Rate decision and QE announcement – no change is expected this month. German politicians and officials have repeatedly criticised the European Central Bank for its loose monetary policy, the latest being German Finance Minister Wolfgang Schaeuble who has stated banks in Europe and the US must gradually abandon easy-money policies.

Data to watch: 1.30pm US Fed’s Dudley Speech. 3pm US NAHB April Housing Market Index.

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