Sterling Benefits From Increased Confidence In Risk

Cable targets 7-week high

Overall risk conditions were broadly steady with an absence of negative headlines which helped underpin risk-sensitive assets. There was a dip in demand for defensive assets such as the yen and Swiss franc while commodity currencies posted net gains. This helped Sterling benefit from increased confidence in risk assets. The Pound to Dollar exchange rate posted net gains to target 7-week highs near 1.2350. The Pound to Euro exchange rate was held in tight ranges and traded around 1.1370. There has been an underlying improvement in confidence surrounding UK fundamentals. A key element has been the slide in wholesale gas prices which will feed through into a lower cost profile. According to Goldman Sachs; "We no longer look for idiosyncratic GBP weakness, as investor sentiment on the fiscal side has improved meaningfully.

Data: BOE Quarterly Bulletin.

First CPI readings in focus

Preliminary March inflation readings in Spain and Germany will be closely watched today. The German figures will obviously draw greater interest, and consensus expectations are for a deceleration from 8.7% to 7.3% in the headline rate. With the European Central Bank explicitly data-dependent despite an implicit hawkish bias, this week’s inflation figures are set to be an important driver of the market’s rate expectations. There are currently two 25bp rate hikes fully priced in by September in the OIS curve, and the bar for another hawkish repricing is set quite high.

Data: German Prelim CPI m/m expected 0.7% from 0.8%. ECB Economic Bulletin.



Investors switch back to focus on inflation

The U.S. Dollar was a tad higher on Thursday as receding concerns over the banking sector bolstered risk sentiment and investors switched their attention to the Federal Reserve's battle against inflation. The dollar index , which measures the currency against six major peers, rose 0.019% to 102.65, after gaining 0.19% overnight. The index was on course, however, to clock a 2% decline for March due to market tumult over problems in the banking industry. "The broader risk sentiment appears sustained as bank contagion concerns continued to fade and a rally in China equities grabs some attention," said Christopher Wong, a currency strategist at OCBC in Singapore.

Data 13.30: Unemployment Claims expected 196k from 191k. Final GDP Price Index q/q expected unchanged 3.9%.