Morning Report: 13 April 2016

13th April 2016 By: Ranko Berich

GBP Sterling received a boost yesterday morning, after an unexpected jump in the UK’s inflation rate for March. Markets had forecast a 0.3% Consumer Price Index reading, however a combination of a sharp rise in air fares, as well as rising footwear and clothing prices, helped push the reading to 0.5%. Given that rising inflation is the single most important justification for interest rate rises, markets initially reacted by buying in to the pound on the back of the release. Despite this, the latest ‘Brexit’ polls showed that the “leave” campaign is now ahead of the “remain” by 45% vs 42% respectively, which has curbed sterling’s strength. The only piece of data due today is the Bank of England’s Credit Condition Survey (9.30 BST), which is used to observe lending and spending behaviours in the UK economy.

EUR After EURUSD reached a fresh 6 month high yesterday morning, investors used the opportunity to take profit from their speculative positions, and the rate subsequently dropped back sharply in the afternoon. Longer term, technical indicators also show some exhaustion in EURUSD’s recent rally, implying that there is now some fairly significant downside potential. The fact that the most recent Brexit polls indicate that a vote for Britain to leave the European Union is now more likely is also weighing on the euro. No data is due today, apart from the release of the French consumer price index earlier this morning, which was in line with expectations at 0.7%.

USD The greenback seems to be gaining some traction as it advanced overnight against most G10 currencies with the exception of the New Zealand dollar, which appreciated sharply on the back of good Chinese trade data. The most notable dollar gains are against the Swiss franc and the Japanese yen, considered safe havens, which implies that the financial markets are enjoying a dose of positive risk sentiment. Monthly retail sector data and the producer price index are expected today at 13.30 BST. Expectations are for an overall improvement supported by March’s Easter holiday shopping season. Crude oil inventories are released at 15.30 BST.

CAD The loonie is advancing in a stampede, breaking most technical levels. Furthermore, although the Bank of Canada is not expected to change interest rates at its meeting today, the recent swathe of improvements in the Canadian economy, not least with its rapidly falling unemployment levels, could prove to be a reason for optimism for the central bank.

UK News

  • BBC. IMF: EU exit could cause severe damage. The UK’s exit from the European Union could cause “severe regional and global damage”, the International Monetary Fund has warned in its latest outlook.
  • Reuters. UK banks plan to boost lending to households but not firms. A Bank of England survey underscored the consumer-led nature of Britain’s economic growth on Wednesday, showing that banks planned to ramp up mortgage lending while business lending was expected to rise by the smallest margin in four years.