GBP/EUR 1.2096 (0.8265)
Friday saw European and US stocks advance and overnight in the Asian session stocks rose for their fourth straight day. European confidence data released on Friday lifted the mood in European stocks, however a slide in German CPI data saw the EUR face some selling pressures. Currencies this week are likely to be led by key data as the Eurozone faces CPI inflation data and an ECB meeting and policy update on Thursday, whilst the US has Non Farm Payroll data due to be released on Friday as well as key ISM data.
In this morning session we have the preliminary release of the March CPI inflation report, with expectations indicating the headline year on year rate will decline to .6% from .8%. This would be the lowest level since November 2009 and will increase pressure being put on the ECB to act before deflation becomes a reality. March PMI data would indicate probability favours a soft outcome on the inflation front and Fridays German release would not have helped.
This is likely to put some serious pressures on the EUR, ECB members have been more vocal in recent weeks that the strong single currency is increasing disinflationary pressures and we know they have also been discussing measures to tackle this. A weak reading is only going to fuel disinflation concerns and increase speculation ahead of Thursday’s ECB meeting. Better than expected German retail sales and the final release of Q4 French GDP has had little impact on the single currency so far this morning.
The US session is light on data with only the Chicago PMI and the Dallas Fed manufacturing activity gauge for March due for release. Janet Yellen is speaking today at an investment conference in Chicago, it is unclear what exactly Yellen’s speech will entail but given the audience of investors there is always the possibility she will discuss the outlook for Fed monetary policy.
This means we will be keeping an eye on headline data coming from Yellen’s speech and looking to gauge the tone and rhetoric for confirmation of her recent hawkish comments post FOMC. Anything that is supportive of this will only help lift the USD , which struggled to advance further last week, yet didn’t come into any abject selling either.