Sterling continued to drift lower following the latest UK inflation data with expectations that a slowdown in the rate of underlying services-sector inflation would lead to a more dovish Bank of England policy stance. There were renewed expectations that the central bank would opt for one more rate hike at most and speculation that rates had peaked also increased. In this context, any comments from Bank of England officials will be monitored closely.
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Euro zone economic growth is likely to be stronger than expected this year while inflation will be lower than in forecasts made towards the end of 2022, the European Commission said this week. The EU executive arm said economic growth in the 20 countries using the euro was likely to be 0.9% this year, rather than the 0.3% predicted last November. Euro zone finance ministers will discuss the more upbeat economic outlook at a meeting later on Monday against the backdrop of very low unemployment that was hardly changed by the slower growth at the end of 2022.
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The dollar maintained a firm tone ahead of Wednesday’s New York open with the US currency gaining further support from the reassessment of interest rate expectations following Tuesday’s inflation data. There were no major Euro-Zone developments as US trends dominated. US retail sales recorded a strong rebound for January with a 3.0% increase for January following a 1.1% decline the previous month and well above consensus forecasts of a 1.8% increase. Underlying sales increased 2.3% on the month after a revised 0.9% decline for December while there was an increase in the control group of 1.7%. Headline sales increased 6.4% over the year with a substantial 25% annual increase in food services and drinking places.
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