Talking Points:
- British Pound May Rise if Upbeat Core CPI Figures Boost BOE Rate Outlook
- US Dollar to Extend Advance if Retail Sales Data Drives Fed Rate Hike Bets
UK CPI figures headline the economic calendar in European trading hours. The core year-on-year inflation rate is expected to remain at 1.2 percent in March, unchanged from the prior month. UK economic news-flow has improved relative to consensus forecasts over recent weeks however, opening the door for an upside surprise. Such an outcome may boost Bank of England rate hike speculation and send the British Pound higher. We remain short EUR/GBP.
Later in the day, the spotlight shifts to the US Retail Sales report. Receipts are seen rising 1.1 percent in March, producing the largest monthly gain in a year. A strong result would come on the heels of a pickup in overall US data flow since late March and may prod investors to rethink the probabilities of a Federal Reserve interest rate hike near the mid-year mark (as it stands, the first increase in the baseline lending rate is being priced in for October by the futures markets). The US Dollar is likely to rise in this scenario, potentially overcoming a key barrier at last month’s highs.
The Japanese Yen outperformed in overnight trade, rising as much as 0.4 percent on average against its major counterparts. The move tracked a move higher in benchmark 10-year Japanese government bond (JGB) prices, hinting a pick-up in JPY-denominated assets may have been the catalyst behind the advance. Furthermore, selling on Asian stock exchanges may have offered a sentiment-derived boost to the safety-linked currency.
