Euro dips. Market awaits UK inflation figures.

Tom Tong15/Apr/2014Currency Updates

GBP

London closed with sterling flat against the dollar and hustling gains against the euro. Retail sales saw a slip however they are still at healthy levels – the four day weekend and the sunny weather is expected to get Brits splashing their cash, so we expect a correction for this month’s figures. Sterling was on the sidelines playing second fiddle to events in Europe and the US. Overall volumes were slight, with traders primed for the results of today’s UK inflation data prior to entering positions. Political tensions in Ukraine and a continual tech stock sell off, played on the FTSE. Early trading saw the FTSE hit, however it pivoted to the upside following a strong start in the US and closed with fair gains.

The key play today will be the inflation numbers. A further fall is expected, meaning we may finally see some growth in real incomes, easing the so called cost of living crisis. A moderate global recovery has provided the backdrop for the UK recovery. The UK has experienced the swiftest recovery out of the developed world and it is vital that inflation mirrors this. Currency markets will take leverage from today’s numbers and we will doubtless see sterling pivots.

CPI, PPI and RPI are all set for release at 8.30GMT.

EUR

Although yesterday was positive for Eurozone growth prospects, the currency remains under pressure following Draghi’s comments over the weekend. London closed with the euro losing ground against both sterling and the dollar. Draghi said in Washington on Saturday that the ECB could ease monetary policy further which initiated a modest euro sell off; however there remains buying on the dips.

The Eurozone saw some spring cheer yesterday as growth figures beat expectations. Growth prospects took leverage from improved industrial output figures, suggesting that the region would report GDP growth of 0.4% for the first quarter of this year. Factory production rose 1.7% compared with the same month last year. This primes the zone for its biggest quarterly growth spurt for 3 years.

The markets remains divided on whether the data relieves some of the pressure on the ECB to introduce further stimulus. The persistent low levels of inflation continue to cause concern over the threat of deflation. However, right now the recovery seems to be on track.

Data of note today – trade balance figures for February and the ZEW survey.

USD

London closed with the dollar flat against sterling, further gains against the euro following a slight euro sell off yesterday, coupled with strong US retail sales figures. The dollar hit session highs against the euro, yen and Swiss franc after retail sales clocked a 1.1% increase in March, marking the biggest gain in almost 18 months. The dollar index is currently up 0.36%.

Presently the US is also in the grip of the banking sector posting results. Citigroup reported solid earnings, a welcome contrast to poor figures from JP Morgan last Friday.

Bundles of data out today should lead to an eventful day for the dollar we have CPI, NY state manufacturing, Redbook index and Fed members talking.

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Written by Tom Tong

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