Currency markets calm ahead of US inflation release today

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13 March 2018

thomasdodds

Foreign exchange traders were in a fairly cautious mood on Monday as they awaited a potentially crucial inflation release in the US this afternoon.

With Friday’s labour report showing that wage growth in the US was perhaps not quite as strong as expected, Dollar bulls will be hoping for a strong inflation release today that could keep alive the possibility of four interest rate hikes from the Federal Reserve in 2018. Analysts are eying a modest increase in the headline rate of inflation to 2.2% for February from the 2.1% registered a month previous. The confirmation at 12:30 GMT this afternoon that price growth in the US exceeded the 2% level for the sixth straight month would support the need for an aggressive pace of rate hikes in our view and could help reignite a rally in the greenback today.

Meanwhile, gains for the Euro petered out as markets opened for the week yesterday. Last week’s slightly more-dovish-than-expected message from the European Central Bank capped gains for the common currency, while continuing to suggest that any interest rate hikes in the Eurozone remain some way off.

An increase in risk appetite following last week’s news that Donald Trump had agreed to meet with North Korean leader Kim Jong-Un for denuclearisation talks has also kept sentiment towards riskier currencies high. The high yielding Australian and New Zealand Dollar have been two of the best performers in the past week at the expense of the safe-haven Japanese Yen and Swiss Franc.

Chancellor Philip Hammond to release latest economic forecasts

Sterling made a fresh charge towards the 1.39 mark yesterday ahead of this morning’s Budget statement from Chancellor Philip Hammond.

For the first time in a while, Britain will have just one Budget report this year, with Hammond instead delivering a much more watered down version of the Autumn Budget today. He will be releasing the latest economic projections from the Office for Budget Responsibility and not much more than that. That being said, any revisions to the growth or inflation forecasts could receive some attention from the markets and may shift the Pound if they prove meaningful.

Other than that, this week looks set to be a quiet one in the UK, with Sterling likely to be driven mostly be events elsewhere.