Sterling Stumbles on CPI Dip

Sterling fell yesterday after CPI slowed in March. UK Retail Sales are in focus today.

Previous Day's Market Highlights

Sterling stumbled yesterday after data showed that CPI unexpectedly slowed in March to 2.5% from 2.7% in February. Inflation had peaked at 3.1% in November. While this leaves the door open for a hike, investors are now less certain of a May move than they were before, and expectations for the pace of future hikes have fallen back as well, since slower inflation reduces the pressure on the BoE to raise interest rates. This was the final CPI print before the BoE meets on 10 May; the next CPI release is 22 May.
 
Sterling-dollar fell over 0.7% on the under-forecast release to below 1.42, while sterling-euro lost the 1.15 level. Euro-dollar continued to trade within the 1.23-1.24 band, temporarily losing ground as the final estimate of March CPI in the Eurozone saw a downwards revision to 1.3%.
 
Sterling-Aussie gave up both the 1.84 and 1.83 levels, and it was unable to regain those levels even as the Aussie weakened overnight on a disappointing jobs report. Sterling-kiwi fell back below 1.95. Sterling’s initial losses against the Canadian dollar were later partially offset by loonie weakness as the Bank of Canada kept interest rates on hold and struck a cautious tone on future hikes.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1469 1.1600 1.1363 2.04%
GBP/USD 1.4199 1.4374 1.3965 2.85%
EUR/USD 1.2380 1.2477 1.2218 2.08%
GBP/AUD 1.8202 1.8509 1.8176 1.80%
GBP/NZD 1.9385 1.9644 1.9171 2.41%
GBP/CAD 1.7919 1.8382 1.7817 3.07%

Today's Market Highlights

UK Retail Sales are expected this morning (09:30 BST) and a mixed set of figures may do little to renew support for the pound after it came under pressure on yesterday’s CPI release. Sales are forecast to have contracted month-on-month but accelerated year-on-year.
 
In the afternoon, the week’s raft of Fed speakers continues. Quarles will testify on supervision and regulation and Mester will speak about the economic outlook. Elsewhere, MPC Member Cunliffe is speaking at the Global Finance Forum, with a Q&A, but after the European close (17:30 BST).
 
Overall, however, the calendar is relatively quiet today, which may keep rates in familiar territory.

Today's Economic Calendar

Time Currency Release Consensus Previous
09:30 GBP Retail Sales MoM (Mar) -0.5% 0.8%
09:30 GBP Core Retail Sales MoM (Mar) -0.4% 0.6%
09:30 GBP Retail Sales YoY (Mar) 2.0% 1.5%
09:30 GBP Core Retail Sales YoY (Mar) 1.4% 1.1%
13:30 USD Initial Jobless Claims (13 Apr) 230K 233K
13:30 USD Philadelphia Fed Manufacturing Survey (Apr) 20.1 22.3
14:30 USD Fed's Quarles Speaks
17:30 GBP MPC Member Cunliffe Speaks
23:45 USD Fed's Mester Speaks

Caxton