UK labour-market data was mixed with an increase in the unemployment rate to 4.2% in the three months to February from 3.9% and above expectations of 4.0%, but headline earnings growth held at 5.6% compared with expectations of a slight decline to 5.5%. Wednesday’s UK inflation data will be another key piece of evidence for the BoE. Consensus forecasts are for the headline inflation rate to decline to 3.1% from 3.4% previously with the core rate retreating to 4.1% from 4.5%. Weaker-than-expected data would increase speculation that the Bank of England will cut interest rates at the June policy meeting. Comments from incoming Deputy Governor Lombardelli will also be monitored on Tuesday although she is not due to take up the appointment until July 1st.
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Claimant Count Change(Mar) Prev 4.1k Act 10.9k
BoE Governor Bailey Speech
The Euro (EUR) began last week fluctuating as mixed German data left the common currency struggling to catch bids as a large contraction in German exports in February was offset by strong growth in industrial production. The euro remained mixed moving into the middle of the week as a lack of economic data releases left the currency unable to find a clear direction. However, on Thursday, EUR exchange rates tumbled in the wake of the European Central Bank (ECB)’s latest interest rate decision. While the central bank left rates unchanged at 4.5% for a sixth consecutive time in April, the accompanying forward guidance stated that lower rates are on the way, which prompted markets to lock in a June rate cut. Tuesday will see the release of Germany’s Zew economic sentiment index which should have some bearing on how the single currency performs today.
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The US economic developments will remain important, especially given the shift in interest rate expectations. Following last week’s data, markets are now pricing in only around a 20% chance that interest rates will be cut at the June meeting. US retail sales increased 0.7% for March compared with consensus forecasts of a 0.4% gain while the February increases was revised to 0.9% from 0.6%. Core retail sales increased 1.1% after a 0.6% increase the previous month while the control group posted a 1.1% increase compared with expectations of 0.4%. Overall risk conditions will continue to be monitored closely in the short term with further concerns over Middle East tensions following the weekend Iranian missile attacks on Israel. There was an element of relief on Monday with a small retreat in gold and oil prices while US equity futures posted a significant recovery. Comments from central bank speakers will be watched during the day as the IMF meetings continue in Washington. Fed Chair Powell, Bank of England Governor Bailey and Bank of Canada Governor Macklem are all due to participate in panel discussions during the day. Markets will be looking at any comments inflation trends and interest rates.
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