Morning Report: 30 March 2015

30th March 2015 By: Ranko Berich

GBP Sterling begins the week on shaky ground, having fallen on Friday to fresh lows for the week against USD. No less than three members of the Bank of England’s Monetary Policy committee gave speeches relevant to monetary policy on Friday. On the whole, nothing new was added to what the public already knew about interest rates; that the Bank’s next move would be dictated by the development of the economy in the areas of inflation and wage growth. After stoking volatility in sterling earlier this month by suggesting that the MPC’s could lower rates further, Haldane mostly stuck to economic theory. Carney and Broadbent discussed the state of inflation and the likely path of policy, with Carney stating that he still believed that a rate hike is the most likely next change in monetary policy. Broadbent, in the meantime, reaffirmed the consensus view in the MPC that the UK’s present bout of low inflation is likely to be a temporary phenomenon caused by falling food and fuel prices, while maintaining that should signs of “bad” deflation occur the BoE will act. This morning, M4 Money Supply data will be released at 09:30 BST. Later in the week the Final Revision of Gross Domestic Product Growth in Q4 2014 will be released at 09:30 on Tuesday.

EUR Volatility in the euro has been extraordinarily high, and a swing of more than 2% was seen on EURUSD on Friday as the euro’s rally from earlier in the week lost momentum rapidly. Throughout the morning today regional German Consumer Price Index data for March will be released, culminating in nationwide CPI at 13:00 BST. Inflation is expected to have picked up further in March, helped along by a weaker euro and easy money thanks to the ECB’s quantitative easing programme. Tuesday morning will be busy with data releases, with German Retail Sales, French Consumer Spending and German and Italian Unemployment data all due before 08:00. Later at 09:00 CPI for the eurozone as a whole will be released.

USD The United States dollar showed signs of recovery from its post-FOMC blues in the second half of last week, as Janet Yellen, Federal Reserve Chair, made it abundantly clear that the likely future path of interest rates in the US would be gentle rate hikes. Yellen said she does “expect that conditions may warrant an increase in the federal funds rate target sometime this year”, a point that has been repeatedly driven home by policy makers in the US. As always, the importance of economic data was emphasised: should conditions deteriorate, hikes will be delayed and vice versa. Today at 12:30 BST the Personal Consumption Expenditure Price Index for February will be released, a crucial event for the dollar given how much emphasis has been placed on inflation data by the Fed. Also out at the same time will be Personal Spending and Personal Income data. Pending Home Sales will be released at 14:00. Later in the week, the Institute of Supply Manufacturing’s Purchasing Managers Index for March will be released on Wednesday, and on Friday all-important the Non-Farm Payrolls report will be released at 12:30.

CAD CAD once again weakened on Friday, as the dollar’s resurgence and a fresh fall in oil prices weighed on the loonie. Today at 12:30 BST, Price Indices for Raw Materials and Industrial Products will be released for February. Given the importance of exports to the Canadian economy, an improvement is desperately needed in these indices after months of decline. A weaker Canadian dollar is expected to finally make a difference here, and forecasts are for an increase in the Raw Materials index after the 7.7% plunge seen in January. Tomorrow at 12:30 Gross Domestic Product Growth data for January will be released, followed by Canada’s Trade Balance on Thursday at 12:30.