A larger-than-expected cooldown in UK inflation sparked a selloff in the pound yesterday, with traders trimming bets on further Bank of England (BoE) rate hikes.
Today, Sterling starts the session mixed. GBP/EUR is marginally down at €1.1248 while GBP/USD crawls higher to $1.2053. GBP/CAD is flat at CA$1.6114, while GBP/AUD and GBP/NZD have slipped to AU$1.7405 and NZ$1.9133, respectively.
Today’s focus is on the latest US PPI release. Could further evidence of persistent price pressures lift the US dollar?
What’s been happening?
The pound plunged yesterday after UK inflation cooled more than expected last month. Following the data, markets cut back on bets for another 50bps hike in March from the Bank of England, triggering a selloff in Sterling.
Meanwhile, the safe-haven US dollar surged higher amid a decidedly downbeat market mood.
The ‘greenback’ enjoyed a further boost in the afternoon, as US retail sales smashed forecasts of 1.8% growth to print at 3%. This, paired with Tuesday’s higher-than-forecast inflation data, raised expectations of a more hawkish Federal Reserve.
This strength in the dollar weighed on the euro, due to EUR’s negative correlation with USD. Still, the single currency was able to firm against its riskier peers amid the gloomy mood, despite mixed data from the Eurozone.
What’s coming up?
Federal Reserve expectations could continue to drive the US dollar today.
USD investors are eagerly awaiting the latest producer price index. If it ticks higher, as expected, then the prospect of stickier inflationary pressures could further boost Fed rate hike bets.
Attention then turns to a handful of Fed speeches from the afternoon into the evening. The ‘greenback’ could rise higher if policymakers hint at further hawkish action.
Before then, a speech from European Central Bank (ECB) board member Fabio Panetta could impact EUR. As one of the more dovish voices at the ECB, Panetta could dent the common currency if he advocates a slower pace of policy tightening.
As for the pound, a lack of UK economic data could see Sterling trade without a clear trajectory.
