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Prospects of a second bailout package for Greece helped risk yesterday and got the euro off the canvas although confusion remains as to whether this package exists and, if it does, for how much. Some reports credited sources with a number of EUR27bn whilst others are putting it closer to EUR60bn. Either way, it is clear that the Greeks need more cash and need it fast. There is still the probability that we see a restructuring of the current debt package soon with the interest level dropped or the time frame for repayment extended.

The single currency has also been bid higher by inflation figures from Germany this morning which showed an increase to 2.7% from 2.3% in April. These are the same inflation pressures as we are seeing here in the UK and are evident elsewhere in the global economy. We haven’t seen wage price inflation tick up in Germany yet however but that is a worry for the works unions and we may see them kick up wage expectations for members over the summer in the run up to the German elections.

Chinese inflation also moved to the upside in April, rising 5.3% from the same time last year although weaker industrial output may fade this figure in the long run. All in all, it’s not great data as it points to a slowing in the 2^nd largest economy in the world. This could lead to a fall in commodities and a knock on effect in South-East Asia if levels are not sustained but we are a long way from that now.

Continuing the inflation theme the Bank of England is due to publish its latest quarterly inflation report at 10.30 this morning and growth expectations are likely to be cut. This is the first public commentary since the Q1 GDP release and the realisation that the past 6 months have seen a stagnation here in the UK. Inflation however is likely to be revised higher. Although CPI has stayed at around 4% in the first quarter, we’ve seen a deterioration in sterling of around 4% while oil markets have risen by 25%. I am expecting the governor and the rest of the team to continue to emphasise the uncertainties in the UK economy while hinting at monetary policy hikes in the future. This could be seen as a negative for GBP so we may see some losses this morning but we believe GBP should be bought on dips.

The only other major release today is US trade balance at 13.30 which is expected to show a fall to -$47bn.

Latest exchange rates at time of writing