UK inflation disappointed yesterday decelerating more than market consensus expected. Inflation is now lower year on year (2.4% vs 2.5%) and, excluding food or energy prices, the number fell from 2.3% to 2.1%. This weaker inflation number cements the dovish stance held by the Bank of England. The chances for a rate hike this summer are diminishing and caused the pound to dip through yesterday’s session.

Next up: retail sales. These numbers are due out at 9.30am BST and could offer a glimmer of hope for the pound. This number reflects the changes of sales in the retail sector and is a leading indicator for consumer spending. The market is hoping for an improved number of 0.7% month on month but is also expecting a dip from 1.1% to 0.1% year on year. If numbers beat expectations, this could allow the pound to regain losses from yesterday, however another miss could damage market confidence further.

Mark Carney will also speak in the evening (6pm BST) so we will monitor any comments around the dip in inflation and any hints that the next rate hike may be further away than previously thought.

USD – FOMC minutes hint at June rate hike

We had the release of the much anticipated FOMC minutes yesterday revealing the Fed is likely to hike rates at the next meeting and were happy to let inflation ‘overshoot’ modestly. The dollar gained slightly, however, these comments were widely expected and the Fed calmed markets from buying the dollar more as they feel confident inflation will track back towards their target.

In other news, we had the release of manufacturing and services PMI’s reflecting the health of both sectors in the US. Both turned positive which certainly helped the dollar through the afternoon.

Tomorrow, we have the release of initial jobless claims highlighting the number of people filing first time claims for unemployment insurance. This is a strong indicator of the health of the labour market and one that could affect the dollar. As unemployment has dipped to record lows over the last few months, markets expect this number to reduce slightly, which may lead to further positivity for the greenback.

EUR: PMI’s and consumer confidence dip

The euro had another poor day across the board as services and manufacturing PMI’s came in worse than expected, continuing a sluggish trend, followed by lower than expected consumer confidence figures. This was all negative for the euro and those believing the Eurozone could cut their QE short this year are starting to turn their heads.

Today we have the release of the ECB meeting accounts, showing markets the detailed discussion at the last ECB meeting. Considering the string of sluggish data from the EU, we don’t expect anything hawkish suggesting the ECB may begin to tighten policy. We expect caution to be the theme of these accounts, meaning little effect to the euro. However, if there is any comments to suggest an extension to their QE, we may see the euro take a knock.