The pound got whupped hard when the U.K.’s CPI report turned out to be a disappointment. Meanwhile, the euro outpaced the yen and was the best-performing currency of the morning London session.
And as a side note, the Loonie was trading mostly sideways during the session, as traders waited for what the BOC has to say later.
- U.K. CPI m/m: 0.1% vs. 0.3% expected, 0.4% previous
- U.K. CPI y/y: 2.5% vs. 2.7% expected, same as previous
- Core U.K. CPI y/y: 2.3% vs. 2.5% expected, 2.4% previous
- HPI in the U.K. y/y: 4.4% vs. 4.8% expected, 4.7% previous
- U.K. PPI input m/m: -0.1% vs. 0.3% expected, -0.4% previous
- U.K. PPI output m/m: 0.2% vs. 0.1% expected, 0.0% previous
- Euro Zone final HICP y/y: 1.3% vs. no change from 1.4% expected
- Euro Zone final core HICP y/y: unchanged at 1.0% as expected
- BOC statement and presser later; read Forex Gump’s Preview
U.K. CPI report
We finally got our hands on the U.K.’s March CPI report. And unfortunately, the report showed that CPI only ticked higher by 0.1% month-on-month in March, a much slower increase compared to the expected 0.3% rise and a sudden deceleration from the 0.4% increase recorded back in February.
Year-on-year, CPI rose only by 2.5%, which is slower than the consensus that CPI will maintain the annual pace of +2.7%.
More importantly for rate hike expectations, the +2.5% annual reading is below the BOE’s own forecast that CPI will increase by 2.8%, as reported in the BOE’s February Inflation Report.
And reading quickly through the CPI report, it looks like the 0.7% increase in the price of clothing and footwear, which is the weakest on record, was the main drag.
Will Italy finally form a new government?
There was word on the wire earlier that Italian President Sergio Mattarella met with Senate Speaker Maria Casellati and gaver her an “exploratory mandate” to mediate with the Italian political parties so that Italy can finally form a new government after the March elections resulted in a hung Parliament.
And according to a Reuters report, Casellati has until Friday to assess the situation and then report back to Mattarella on the “the possibility of breaking the deadlock.”
Commodities were in rally mode during the morning London session, with base metals leading the way.
There was no clear reason for the broad-based rise in commodity prices.
But some market analysts say that U.S. sanctions on Russian aluminum company Rusal helped to drive up the prices of aluminum and other base metals.
Oil prices, meanwhile, were on the rise because of expectations that official data from the U.S. Energy Information Administration (EIA) will show a draw in U.S. oil inventories, market analysts say.
As for the rise in prices of precious metals, that may have been due to the returning risk-off vibes.
Base metals were in high demand and clearly outperformed other commodity types.
- Copper was up by 2.58% to $3.159 per pound
- Aluminum was up by 5.32% to $2,524.00 per dry metric ton
Oil benchmarks were also in demand.
- U.S. WTI crude oil was up by 1.92% to $67.80 per barrel
- Brent crude oil was up by 1.70% to $72.80 per barrel
And the same can be said of precious metals.
- Gold was up by 0.38% to $1,354.60 per troy ounce
- Silver was up by 1.63% to $17.060 per troy ounce
Fading risk appetite in Europe
The major European equity indices started the trading day on a strong footing, which is a sign of risk appetite.
And market analaysts attributed the initial risk-on vibes to positive earnings reports and deal-making activity in Europe.
However, signs of risk aversion began to creep in as the session progressed since all the major European equity indices were off their intraday highs when the session ended. And some were even already in negative territory.
There’s no clear reason for the later risk-off vibes, though.
- The pan-European FTSEurofirst 300 was still up by 0.02% to 1,492.16 but off the day’s high at 1,496.59
- Germany’s DAX was already down by 0.23% to 12,556.86
- The blue-chip Euro Stoxx 50 was still up by 0.10% to 3,485.25 but off the day’s high at 3,491.05
Major Market Mover(s):
The pound was swamped by sellers when the U.K.’s March CPI report failed to meet expectations and likely dampened expectations for a May rate hike.
GBP/USD was down by 77 pips (-0.54%) to 1.4216, GBP/JPY was down by 95 pips (-0.62%) to 152.43, GBP/CHF was down by 79 pips (-0.57%) to 1.3756
The euro outperformed the safe-haven yen and was the top-performing currency of the session, even though the Euro Zone’s headline HICP reading was downgraded from 1.4% to 1.3%.
It’s not yet clear what caused the euro to be bid higher, but it looks like the bullish pressure came about after word got around that Italy is trying to finally put together a new government several weeks after the March elections resulted in a hung Parliament.
EUR/USD was up by 20 pips (+0.16%) to 1.2383, EUR/NZD was up by 37 pips (+0.22%) to 1.6922, EUR/GBP was up by 60 pips (+0.70%) to 0.8710
Watch Out For:
- 2:00 pm GMT: BOC monetary policy decision and statement (Overnight rate steady at 1.25% expected); read Forex Gump’s Preview
- 2:15 pm GMT: U.S. crude oil inventories (-0.5M expected, 3.3M previous)
- 3:15 pm GMT: BOC presser
- 6:00 pm GMT: The U.S. Fed will release its so-called “Beige Book”
- 7:15 pm GMT: New York Fed President William Dudley will give a speech
- 8:15 pm GMT: Federal Reserve Governor Randal Quarles is scheduled to speak