Sterling edged lower in early Europe on Monday with the latest batch of UK data releases causing further concern over the outlook. There were important concerns that the official level of GDP would be undermined by a dip in healthcare spending as coronavirus testing was scaled back sharply. Although UK yields moved sharply higher on the day, overall yield spreads still moved against the UK currency given the surge in US yields. Sterling did again find support against the dollar which encouraged a limited round of short covering, but sentiment remained weak. BRC data recorded a 0.4% decline in like-for-like retail sales for March from 2.7% previously while inflation pressures increased to an 11-year high. UK labour-market data recorded a slight decline in unemployment to 3.85 from 3.9% while core average earnings increased 4.0% over the year from 3.8% with both figures in line with expectations.
Key Data
7.00 Claimant Count Change (Mar) Act. -46.9K Exp. -51k Prev. -58K
7.00 ILO Unemployment Rate (3M) (Feb) Act. 3.8% Exp. 3.9% Prev. 3.9%
The Euro continued to gain an element of support in early Europe on Monday with some relief and short covering following the first round of the French presidential election, although markets were still wary over the risk that National Front le Pen could secure an upset victory in the second round. Higher German bond yields were a factor providing Euro support with the 10-year yield increasing to above 0.80% and the highest level for over seven years. There was also a further limited shift in ECB rate expectations with markets pricing in 70 basis points of rate hikes by December compared with 65 basis points on Friday. Overall confidence in the Euro-zone outlook remained weak and the Euro was unable to sustain the move.
Key Data
7.00 German Harmonized Index of Consumer Prices (YoY) (Mar) Act. 7.6% Exp. 7.6% Prev. 7.6%
9.00 ECB Bank Lending Survey
Chicago Fed President Evans stated that a 50 basis-point rate hike is worthy of considerations and perhaps highly likely. He did, however, add that the Fed needs to allow itself some time to get to neutral rates. Money markets have priced in over a 90% chance of a 50-basis-point hike at the May meeting. The latest US inflation data will be released on Tuesday with consensus forecasts that the headline rate will increase to a fresh 40-year high of 8.4% from 7.9% previously while the core rate is expected to increase to 6.6% from 6.4% and also the highest reading since 1982. Stronger than expected data would reinforce pressure for a much more aggressive Fed tightening and potentially support the dollar while lower figures would provide an element of relief.
Key Data
13.30 Consumer Price Index ex Food & Energy (MoM) (Mar) Exp. 0.5% Prev. 0.5%
13.30 Consumer Price Index ex Food & Energy (YoY) (Mar) Exp. 6.6% Prev. 6.4%