31/03/2017 - German Inflation Sees Sharp Fall

EUR

The euro weakened yesterday, as German inflation fell dramatically. The cost of living in Europe's largest economy fell to 1.5 % - from 2.2 % in February. Markets had expected an inflation reading for March of around 1.9 %, and the shock led to a euro sell off.

A drop below the ECB’s 2% target will ease the pressure on Mr Draghi from hawks within member states’ central banks to take steps towards ending the quantitative easing programme. The ECB's huge current money-printing programme has been designed to help rising prices and kick the European economy into action. Policymakers at the central bank have recently been more upbeat about the outlook, amid rising inflation across the bloc and signs of growth.

Market focus is slowly turning away from Brexit and towards upcoming French elections in April and the threat of a ‘’Frexit’’. In the event that support for Marine Le Pen of the far right-wing National Front party increases, so too will anxiety among market participants, and the future of the Eurozone will be brought into question and place more pressure on the euro in the months ahead.

GBP

The UK Government released the Great Repeal Bill, confirming that the government will allow ministers to tweak laws that will not work appropriately after Brexit. David Davis said he believes that this will smooth the path for upcoming talks, saying “It also means the negotiation over our future economic partnership with the EU will be unlike any other in history, because we will start from a point of exact equivalence.”

The Pound also hit a one-month high against the Euro yesterday, benefiting from poor German inflation figures.

USD

A revised report released yesterday showed that the US economy grew at a faster pace in the fourth-quarter of 2016 than previously estimated. Gross domestic product increased 2.1 percent, compared with the previously reported 1.9 percent, according to the Commerce Department. Although the figure exceeds the pace of growth seen during the first half of 2016, it is still a marked slowdown from the 3.5 per cent growth recorded during the third quarter.

The Labour department revealed that fewer Americans filed for U.S. unemployment benefits last week, while remaining at levels consistent with a solid labour market. Weekly applications for unemployment aid dropped 3,000 to a seasonally adjusted 258,000. The four-week average, a less volatile measure, rose to 254,250. Such a low level of applications suggests companies are cutting few jobs.

Key Announcements 

9:30 AM – GBP : current Account, expected at -16.3B against a precious of -25.5B