Sterling suffers as inflation falls | Smart Daily Currency Note

Sterling

Sterling dropped on almost all fronts yesterday, falling to a seven-week low against the US dollar as markets reacted to inflation rates coming in lower than expected at 2.4% for April, down from 2.8% in March: the first fall since 2012. The figures showed that lower fuel prices outweighed a rise in grocery costs as the cold and wet winter hit crop production. The data gives the Bank of England and incoming Governor Mark Carney more leeway to stimulate economic growth by expanding the UK's asset purchasing programme and so caused a significant reaction in the market. The government has signalled it would be more relaxed about the bank loosening it's hold on inflation in favour of acting to stimulate the economy, though Tuesday's news has reinforced investor's decisions to sell sterling before tomorrow's crucial release of minutes from the latest Monetary Policy Committee meeting. The report will reveal how many policy makers voted to expand asset purchases to boost growth as it aims to encourage a stronger recovery, though a change in support to that effect is likely to instil further sterling weakness. Be in touch with your trader throughout today for rates and feedback.

Euro

It was mixed day for the euro yesterday as it experienced further volatility amidst the on-going uncertainty regarding central bank policy in the UK, the US and in Europe. The single currency performed well against a struggling sterling throughout the day, but expectations are low for today's EU economic summit as many fear that despite increasing pressure to take action to reverse widespread economic contraction many expect the group to attempt to buy more time as they become increasingly reliant on monetary stimulus. More influential data is expected later on in the week in the form of French and German manufacturing and services figures which follow last week's disappointing growth report, whilst on Thursday the European Central Bank President delivers his speech which should give clues to monetary policy going forwards. With further volatility in euro markets likely this week, call in now for live rates and response on developments from Smart.

US dollar

Tuesday's trading saw the US dollar resume it's advance against most of it's major counterparts as markets await the Federal Open Market Committee's latest meeting minutes this evening. Having lost ground on Monday the currency made gains in most pairings, though markets have been cautious before today's pending events. The Federal Reserve will be thrown into focus if the meeting minutes show a growing willingness to alter it's current stance on quantitative easing involving a monthly 85 billion dollars in asset purchases. Speculation from last week has been circulating that the Federal Reserve could start to wind down it's easing programme as early as this summer and any movements towards this are likely to boost dollar prices going forward. We will have a better idea by the end of today when the FOMC minutes emerge and the Federal Reserve chairman testifies in congress. Call your trader now for market reactions coming up to this evening.

Worldwide

Elsewhere, the Canadian dollar fell against the majority of its main trading partners, dropping to a two-month low against the US dollar, as data showed crude oil, Canada's biggest export, broke the four-day rally it had achieved in spite of commodity prices falling almost ecumenically. Tuesday was also a poor day for the Swiss franc with it losing ground to the euro amid rumours that the Swiss National Bank could implement negative interest rates on banks' excess deposits. The Australian dollar carried it's momentum from Monday; rebounding from its worst period against the US dollar in more than a year whilst New Zealand dollars also saw strength building on their biggest advance in eight months. Overnight we saw the Bank of Japan deliver it's statement on monetary policy and later on today the Swiss National Bank Chairman speaks along with the release of monthly Canadian retail sales data. Be in touch today for up to the minute rates on your currency trades.