21/03/2018 - Inflation Shows Slow Down

GBP

The pound slid against the dollar yesterday after a report published by the Office for National Statistics showed that inflation in the UK slowed by more than predicted last month. The consumer price index fell from 3.0% to 2.7% however analysts had originally expected the figure to post a reading of 2.8%. The new data comes in a week when the Bank of England is expected to signal interest rates will rise as early as May. However with the UK and the EU having struck a crucial transition deal earlier this week, markets are still pricing in the probability of a rate in May at 70%.

Markets will now be looking ahead to wage growth and employment numbers due to be released  later today for further rhetoric on the trajectory of UK interest rates in the coming months. The central bank has recently signaled that it wants to see some pressures on wages before it tightens policy.

Sterling has now cemented its place as one of the best performing major currencies in the last year, with both the UK and the EU now clear to negotiate their future trading relationship in light on Monday’s agreement.

USD

The dollar strengthened yesterday as investors awaited fresh clues from the Fed on its outlook for the US economy and how many times it will hike rates over the course of the next year. Traders are widely expecting policymakers at the US central bank to increase borrowing costs by 25 basis points to a target range of 1.50 percent to 1.75 percent at a two-day meeting which is set to conclude later today. Although the rate hike is largely priced into the market, investors will be keeping a particular eye on new quarterly forecasts from Fed officials followed by a press conference from newly appointed chair Jerome Powell.

Key Announcements

09:30-GBP: Average Earnings Index 3m/y

14:30-USD: Crude Oil Inventories

18:00-USD: FOMC Economic Projections

18:00-USD: FOMC Statement

18:00-USD: Federal Funds Rate; Forecast to increase from 1%-1.25% to 1.50%-1.75%

18:30-USD: FOMC Press Conference