UK Inflation at 15-month high
Yesterday’s CPI inflation figure for the UK beat expectations, increasing to a 15-month high of 0.5% for March. Core inflation was also stronger than expected, showing an increase to 1.5%.
The market had already priced in a higher inflation rate. However, as the increase was larger than expected Sterling continued to strengthen throughout the day. GBPUSD reached highs of 1.4348 before the International Monetary Fund (IMF) warned that a ‘Brexit’ could cause “severe regional and global damage”, which brought Cable back down to 1.4200.
Today we have a relatively quiet data day for the UK as the market prepares itself for the Monetary Policy Committee (MPC) meeting tomorrow. No change is expected from the 9-0 vote in favour of maintaining interest rates at 0.5%. However, March’s inflation rise will likely be the catalyst for a more hawkish Mark Carney in the run up to the upcoming EU referendum.
In the US, there was a light economic data calendar yesterday. Philadelphia Fed President Harker stated that the Fed could increase interest rates three times this year. The Dallas Fed head Kaplan stated that a rate rise was possible in the not too distant future as fellow Federal Open Market Committee member Lacker maintained a hawkish tone.
Cable had hit its highest level in over two weeks in the European trading session, before the Dollar bulls took control and the pair fell 1% to find support at the 1.4200 level. GBPUSD opened this morning at 1.4274. EURUSD touched a fresh year high of 1.1461, before the Greenback rallied back in the US session as overall market sentiment improved due to the rise in oil prices and the bullish tone from the Fed members on the US economy. The pair opened this morning at 1.1386, down 0.68% from the yearly highs posted yesterday. The latest US retail sales data will be watched closely later today for further evidence of any underlying trends in the US economy.
The Euro lost ground against Sterling yesterday morning, moving from 1.2457 to 1.2556 in a couple of hours after the UK Inflation Reports were released. Bundesbank President Weidmann expressed his support for the European Central Bank’s monetary policy and its president Mario Draghi. Today the Eurostat industrial production figures will give us an indication of inflation levels in the European economy. Persistent disinflation could lead to further easing measures in future, despite the protests from Germany.
Data to watch: 10am Eur Industrial Production February. 1.30pm US Retail Sales March. 7pm US Fed’s Beige Book.