EUR
The Euro continued to strengthen yesterday on more positivity on Greece and
news the European Central Bank raised its forecast for inflation this
year, but remained cautious of the economic recovery losing momentum. Data
showed euro inflation turned positive in May and the closely-watched core rate
jumped to 0.9 percent, signalling an end to the threat of deflation, which
prompted the ECB to begin printing money earlier this year.
 

EUR
The Euro continued to strengthen yesterday on more positivity on Greece and
news the European Central Bank raised its forecast for inflation this
year, but remained cautious of the economic recovery losing momentum. Data
showed euro inflation turned positive in May and the closely-watched core rate
jumped to 0.9 percent, signalling an end to the threat of deflation, which
prompted the ECB to begin printing money earlier this year.
 
After leaving interest rates at a record low 0.05 percent, the ECB raised its
inflation forecast to 0.3 percent for this year, having previously put it at
zero. They stated that its trillion-euro-plus asset buying programme was paying
off earlier than forecast, but had to be seen through.
 
“Inflation bottomed out at the beginning of the year,” Draghi said.
“The recovery is on track. However, we had expected stronger figures than
our projections … There has been some modest loss of momentum.”
 
Draghi repeated that lifting inflation towards its near 2 percent target
depends on full implementation of the quantitative easing scheme, which is due
to last until September 2016 and said the ECB would look through any market
volatility. With oil prices now rising and the impact of last year’s
dramatic fall dropping out of the equation by the end of 2015, price pressures
should rise automatically.

GBP
Growth in Britain’s service sector suffered its steepest slowdown in nearly
four years in May, according to a survey that suggested the economy might not
recover as quickly as hoped after stumbling in early 2015.  Markit/CIPS
services purchasing managers’ index (PMI) fell back to 56.5 last month, still
comfortably in growth territory but down from 59.5 in April and at its lowest
level since December.
 
The monthly drop was the biggest since August 2011 and the reading undercut the
lowest forecast, though the index did show signs that rock-bottom inflation
could pick up. Combined with a weak manufacturing figure and a bounce in
construction, combined growth across the three sectors in May was the slowest
since December and the second-weakest for two years, Markit said.
 
Chris Williamson, Markit’s chief economist, said the weakness would be a
concern for the Bank of England which is considering when to raise interest
rates from a record low of 0.5 percent, where they have sat since the financial
crisis.

USD
The trade deficit in the US narrowed more than forecast in April as
imports declined, signalling merchandise flows were returning to normal
following a port-related surge. The gap shrank by 19.2 percent to $40.9
billion from the prior month’s $50.6 billion which was the widest in more than
six years. Purchases of foreign-made goods declined after the end of a labour
dispute at West Coast ports caused them to jump in March.
 
The non-farm payroll estimate figure revealed companies added more workers in
May than the prior month, a sign U.S. job growth is getting back on track after
a slow start to the year ahead of Fridays headline figure. 
 
In the U.S., the combination of more jobs, lower gasoline prices and low
borrowing costs are likely to help lift household purchases, which account for
almost 70 percent of the economy. Policy makers also expect growth to pick up,
which is one of many reasons they’re considering raising the benchmark interest
rate that they’ve held near zero since December 2008.

Key Announcements
12:00 – GBP – Official Bank Rate is expected to remain at 0.50%
13:30 – USD – Unemployment Claims

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