Morning Report: 12 April 2016

12th April 2016 By: Ranko Berich

GBP Sterling began the week rallying strongly against most of the G10 currencies, as it was bolstered by a risk-on mood in global markets, as demonstrated by a weaker Japanese lower yen and new highs in crude oil prices. This rally will be tested today at 9.30 BST however, with inflation data set to be released in the UK in the form of consumer, producer and house price indexes. It is expected to see an overall improvement in the inflation figures, favoured by the increase in oil prices during recent weeks. Even though Brexit risks weigh more in sterling in the present, an improvement in the inflation outlook could support further increases in sterling, although investors will remain cautious ahead of Thursday’s Bank of England’s rate decision and monetary policy summary.

EUR The euro’s recent strength has pushed the single currency above the range that confined it against the US dollar for the last two weeks. Last week’s remarks from various European Central Bank (ECB) officials, who stated that the central bank still has a number of instruments to recover inflation in the Eurozone, have not had repercussions in the single currency which is closer to 6 month highs against the dollar, and near two year highs against sterling. The persistent upwards rally in the euro will prove to be a headache for the ECB’s authorities if it keeps climbing higher. Two inflation figures were released earlier in Germany in the form of consumer and wholesale inflation both in line with expectations. No more data is due today.

USD The corporate quarterly earnings season for the first quarter of the year starts today. Investors are very pessimistic about the earnings’ outlook, which could lead to a quick reverse of the risk-on mood currently grasped in financial markets if the first earning reports fall short of expectations. In the meanwhile, dollar weakness is this week’s dominating theme, where the greenback is falling against most G10 currencies. There are no major economic data expected to be released today in the US.

CAD Brent oil reached yesterday a 5-month high on expectations that an agreement to freeze production could be reached in this month’s OPEC meeting. The Canadian dollar rallied accordingly close to its highest level since October 2015. No data is expected from Canada today, but markets will begin to position themselves ahead of tomorrow’s Bank of Canada’s rate decision. After a monster job report last Friday in which the number of jobs created quadrupled expectations, it would not be surprising to see a positive statement from the central bank.

UK News

  • Bloomberg Business. U.K. Inflation Rate Hits 15-Month High on Early Easter Boost. U.K. inflation accelerated to a 15-month high in March as an early Easter boosted air fares and clothing prices increased. Consumer prices rose 0.5 percent from a year earlier, the fastest pace since December 2014. Core inflation, which excludes volatile food and energy prices, quickened to 1.5 percent, the most since October 2014.