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Inflation here in the UK remained high yesterday with CPI remaining at 4.5% to match analyst’s expectations. The core inflation reading (minus food, energy, alcohol and tobacco) fell to 3.3% from 3.7% in April maintaining the stance that the big move higher in prices has been as a result of commodity price moves as opposed to wages. This further galvanizes the view that interest rates are not going rise anytime soon as the MPC will hold on to the belief that these rises will moderate in the coming months. Sterling remained unchanged on the announcement versus the euro and US dollar.

There was not too much concern for the euro from the debt issuances from Spain and Greece yesterday. Spain managed to sell EUR5.4bn in 12 and 18 month debt with an yield that was 15bps higher than previous although demand was higher at 2.9 vs. 2.5 previously. This suggests that investors believe there is value in Spanish debt. This was not the same for the Greek issuance that saw the yield rise and demand fall quite heavily.

Further on the Greek situation it seems that some members of the Greek parliament are due to attempt to derail the passage of the new bailout package and the Prime Minister has had to call an urgent meeting with the President. Even so, it seems that a deal on further Greek aid is unlikely at the EU Finance Ministers meeting that is ongoing.

One thing that has hit the euro overnight was the announcement that Moody’s have put the three largest banks in France on review for a possible ratings cut on what they believe to be “overexposure” to Greek debt.

In the US, advance retail sales fell by 0.2% in May against an expected fall of -0.5% however the 0.5% gain seen in April was revised lower to 0.3%. This further shows the deterioration of consumer buying power in the United States and heightens the risk that the US will fall into a secondary recession at the end of the year. The dollar gained ground on its crosses after the reading and has remained strong overnight.

It is yet another packed data day with UK unemployment at 09.30 and US CPI at 13.30 We also have debt auctions from the UK, Portugal and Germany and both Chancellor Osborne and newly knighted Bank of England Governor Sir Mervyn King will deliver speeches at the Mansion House tonight. Overnight the Nationwide consumer confidence figure for the UK has surprised higher although this seems to be very much still the sugar hit of the royal wedding and the warm April.

Latest exchange rates at time of writing