The main data out of the UK, CPI inflation, is expected to show a decline in the to 2.6% region today, mostly as a result of weaker energy prices, with the potential for an even lower print than forecast. Given the recent inflation report, this probably won’t be cause for a big move in GBP, as policy focuses on growth potential and the path over the course of the year rather than current inflation.
The more positive recent tone to UK data suggests that the pressure for more QE has abated for now in any case, though we will see from the minutes tomorrow whether the recent Bank of England meeting saw a shift to 7-2 in favour of no change from the 6-3 last time. GBPUSD is likely to remain relatively range bound ahead of the data tomorrow.
A quiet data day follows in Europe with the only data of the day already released, showing German PPI weaker than expect, just 0.1% higher over the year. This will have been affected by the falling commodity prices and is likely to be followed by a similarly weaker reading from the UK. Given the lack of data and the constrained price action between 1.28 and 1.29 yesterday, we are unlikely to see any fireworks today whilst the markets wait for Bernanke’s testimony and the FOMC minutes tomorrow.
The Australian dollar found some support following its decline over the last couple of months from 1.06 to 0.97 following the minutes from the reserve bank. The May meeting (where the cash rate was cut by 0.25% to 2.75%) revealed that the board’s view of the data has not significantly weakened, though the justification of the rate cut was to boost the economy, with some thought also going into the valuation of AUD.