GBP

The vaccination progress continued to breed confidence lockdown restrictions would be eased soon and help deliver a strong economic recovery which supported the Pound. The positivity was magnified by a firm risk appetite and strong demand for reflation trades across markets. Sterling pushed to just above 1.3950 against the Dollar. Through the afternoon volatility rose as higher US bond yields helped the Dollar recover ground and the Pound fell sharply to lows near 1.3870. Strong buying support on dips aided a recovery back above 1.3900 and the Euro retreated to just below the 1.1490 level.

This morning the headline UK CPI inflation rate increased 0.7% in January, slightly  above expectations and up from 0.6% in December. Core inflation remained at 1.4%. Sterling opens below 1.3900 against the Dollar as demand for risk assets has dampened and the Euro remains around 1.1495.

USD

The dollar posted 3-week lows ahead of the New York open yesterday as underlying US sentiment remained weak and markets continued to chase reflationary trades including commodity currencies.

The New York Empire manufacturing survey strengthened to 12.1 for February from 3.5 previously and above consensus forecasts of 6.2. There was stronger growth in new orders for the month and unfilled orders also posted an increase. Employment continued to increase on the month and there was a sharp increase in prices for the month, reinforcing expectations of a wider increase in inflation as bond-market trends remained important.

The dollar was able to regain some ground following the data and gained additional traction as Wall Street opened. Mixed data has triggered uncertainty over the US outlook and Today’s retail sales data will be important for sentiment with a significant rebound expected for January.

St Louis Federal Reserve (Fed) President Bullard stated that financial conditions were generally good and that inflation was likely to rise this year which is something that the central bank would take into account. The comments triggered some fresh speculation that the Fed could shift to a less accommodative policy later this year.

EUR

The German ZEW economic sentiment index strengthened to a 5-month high of 71.2 for February from 61.8 the previous month and above consensus forecasts of 59.6. There was, however, a slight decline in the current conditions index to -67.2 from -66.4 previously. The wider euro-zone index strengthened to 69.6 from 58.3 previously.

The Euro closed against the Dollar little changed and gained traction during the European session after touching its highest level in three weeks at 1.2170, the pair however, reversed its course and turned negative with the fall continuing into Wednesday's session.

With the Euro docket light, fresh impetus could come from the US retail sales and FOMC minutes due for release later today. As of writing, the Euro currently trades around the 1.2080 mark against its US counterpart. 

Data to watch

08:30 - USD - Core Retail Sales 

08:30 - USD - Retail Sales

14:00 - USD - FOMC Meeting Minutes