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EUR: The GDP data for the Eurozone GDP is set to show a contraction after the German data came out weaker than expected this morning (rising just 0.1%). Eurozone initially seen falling -0.1%, but at least 0.2% decline now looking likely.  A weaker number than this would further knock the euro. Update: the euro-zone contracted by 0.2%.

GBP: Focus on the Inflation Report. The previous publication in February knocked sterling lower as the Bank projected inflation above target on its 2 year horizon at the same time as pushing for more stimulus for the economy. We’re not likely to get such a bearish outcome this time around. Update: UK jobless claims came out better than expected.

Idea of the Day

Three months ago, sterling was knocked lower by the Inflation Report because the Bank of England said inflation was likely to remain above target over their 2 year forecast horizon. Over the same period, both the governor and two others were voting for further quantitative easing to further stimulate the economy.

The result was a 4% depreciation of sterling over the subsequent month to a low just above 1.48.   We’re not likely to see a repeat this time around. The growth outlook has improved a little and inflation projections should not worsen and may even improve a little.   But we do remain in something of a no-man’s land, waiting for the new governor in July and more details of a revised policy framework in August.   This is likely to act as a constraining factor on sterling, even if the news is more positive today.

Latest FX News

JPY:  Holding very steady during the Asia session after push to new highs into the close on Tuesday (102.43). Market looking to weekly portfolio data on Thursday for signs of continued foreign asset purchases by domestic investors after the turnaround in last week’s data.

AUD:  The budget was seen paving the way for further interest rate cuts from the RBA, which put the Aussie on the defensive and at new lows for the year at 0.9877.

GBP:   Cable has been declining for the past four sessions, although no single fundamental driver to the softer tone. The Inflation Report the crucial factor for today’s session.

EUR: Knocked lower at the start of the European session (through 1.29 on EURUSD) on weaker than expected German GDP data, with growth just 0.1% in the first quarter, after 0.7% decline previously.

Further reading:  The Fed needs to be convinced that this time it’s for real