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What will the BoE make of rising inflation and slowing growth?

What will the BoE make of rising inflation and slowing growth?

The lack of economic data yesterday for the UK meant that the Pound was dictated to by global moves of the Dollar and the Euro. Cable traded predominantly sideways, but was unable to make sustained headway and ended the day slightly down at 1.4202. Against the Euro, Sterling continually tested the 1.2600 mark, but failed to break resistance.

Today the Bank of England (BoE) announce their policy decision alongside meeting minutes. Expectations are that the Bank will continue to leave interest rates on hold for now, with another 9-0 vote, especially with the uncertainty of the EU referendum looming. However, inflation concerns are liable to mount and at least one of the more hawkish members could vote for a rate increase.

In the US, headline Retail sales data came in worse than expected, posting a drop of 0.3% in March against the market consensus of a 0.1% gain. Producer prices data was also weaker than expected with a 0.1% monthly decline, while core prices fell 0.1% with no significant evidence of inflationary pressure. Despite the data, the Dollar showed signs of strength as an improvement in global sentiment led investors to trim bearish Dollar positions.

After two weeks of sideways trading, the Dollar bulls finally dragged EURUSD through the 1.1310 level as the pair continued to trend downwards in the Asian session.The pair opened this morning at 1.1274. US consumer inflation data will be watched closely today for further evidence of underlying inflation trends. The report is a key indicator used by the Fed when deciding the time for the next rate hike.

The Euro’s week of weakness continued as GBPEUR opens the day still looking to break 1.2600, moving up by half a percent in yesterday’s trading session. European industrial production figures came in lower than expected as the negative sentiment around the Eurozone continues. The single currency will look to rebound against its major FX peers today, as the Consumer Price Index figures are due. A positive result will prove bullish for the Euro.

Data to watch: 10am Euro February Consumer Price Index & Core CPI, year on year & month on month. 12pm UK Interest Rate Decision & Voting. BoE minutes & Asset Purchase Facility. US 1.30pm Initial & Continuing Jobless Claims. US March CPI (various)

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