The main event on the economic docket today is this morning’s UK Consumer Price Index report, which is expected to show that inflation slowed from 1.9% to a fresh 4-year low of 1.7% during February.
With the Bank of England showing no indication that it intends to hike interest rates until Spring 2015, the Pound has lost a little bit of the pizzazz that drove it higher across the board during the last few months.
Over the past eight months a series of outperforming labour market PMI and GDP data releases caused investors to pile into the Pound as rate hike speculation proliferated.
GBP/USD is currently 13 cents higher than it was last June, GBP/EUR is 2 cents higher, GBP/CAD is higher by around 26 cents, GBP/AUD is 22 cents higher and GBP/NZD is 6 cents higher.
However, it seems that Sterling peaked versus most of the majors during February; since then there has been little in the form of UK ecostats that could persuade policymakers at the BoE to tighten monetary policy ahead of its Spring 2015 schedule.
During the crisis years UK CPI remained well above target and was seen as one of the reasons that the BoE refrained from introducing more quantitative easing measures than it did. However, as the economy began to strengthen and the Pound began to appreciate, inflation started to cool down. If the Consumer Price Index sinks to 1.7% this morning, as it is expected to do, then it is likely to damage demand for the Pound because it could be seen to give the Bank of England more incentive to hold off on hiking rates.
Sitting just above key technical support at 1.6475, the Pound to US Dollar exchange rate (GBP/USD) could be the currency pair with the most at stake. A drop below that support level could lead to a steep decline towards 1.6300.
A soft CPI reading could also negatively impact the Sterling to Euro exchange rate (GBP/EUR), which is currently struggling to reassert itself above psychological support at 1.2000.
Data Schedule
The other important UK release to look out for today is Britain’s BBA Loans for House Purchases print, which is forecast to rise to a fresh 7-year high of 50,000.
In the Eurozone the German IFO index of Business Climate is predicted to remain fairly robust at 110.9 in march, slightly below February’s 111.3.
Whilst in the United States, Consumer Confidence is anticipated to rise to 78.6, but New Home Sales are forecast to contract by -4.9%.
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