Markets subdued ahead of US inflation data

Trading remained fairly range traded yesterday with a lack of headline economic data. The US dollar showed signs of weakness mostly due to investors looking for higher yields as the expectation of an interest rate hike in the US seems to be pushed back. Markets are now expecting a global slowdown in growth to push back the timing of interest rate hikes in the US to the second half of 2015. The dollar could see signs of further weakness till the Federal Reserve meeting next week. In her last statement, Janet Yellen was fairly dovish hinting that the slowdowns in China and Europe could weigh on Fed policy to remain cautious. Yesterday, Fed member Dudley gave a speech and reasserted that it’s still premature to raise rates in the first half of 2015. He also said that a strong dollar and weak foreign demand are holding inflation in the US below the targeted two per cent rate. From the US, we have Redbook numbers and weekly crude and gasoline inventories, as well as home sales numbers.
 
From Europe, we had inflation numbers from the peripheral states which also point towards a slowdown. Bundesbank board member, Joachim Nagel has undermined the need for the European Central Bank to rush into asset backed securities and bond purchases. With weak data out last month from production and export numbers, the second half of 2014 could be disappointing and might see the euro rack up losses. EUR/USD currently trades at 1.2815.
 
Sterling has strengthened against the Greenback over the last week, moving up two cents with GBP/USD currently trading at 1.6165. With a lack of economic data to start the week, the pound strengthened with the view that the US will maintain an accommodative policy right through 2015; although further direction should come later in the week as markets look to tomorrow’s CPI data and the MPC meeting minutes tomorrow. Today we have public sector net borrowing numbers expected at 9.20 billion and Sterling should remain range traded and maintain its current strength.

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