- German CPI Matched Forecast
- Could Yellen Save The Day For Dollar?
- GBP Eye BOE Credit Condition Survey
The German CPI data released this morning pushed the euro-dollar pair higher as the number (0.2%) that matched the forecast. The needle for inflation hasn’t moved therefore, it confirms that Mario Draghi could still sunbath for some time and there is no rush in taking any hasty measures in relation to their monetary. There is no repudiating that oil prices are well off from their lows, however, they are far from a level which is going to raise the inflation boat. Therefore, Draghi could uphold his stance that the Eurozone is still in the necessity of accommodating monetary policy. Yes, the inflation numbers in Germany are somewhat cheering, but it is all about the overall picture for the Eurozone. It indicates that inflationary pressure is subdued. Hence, there is no rush in changing the gear for the monetary policy.
The first day of Yellen’s testimony took the floor out of the dollar and the effects are still prominent. Her speech was labelled as dovish due to no signs of any aggressive rate hikes or having a firm plan in relation to scaling down their balance sheet. On the flip side, Treasuries and equity markets are fully reinforced by traders who went in with a strong love for these markets. The softness in some part of the economic data was stamped as transitory, but Yellen highlighted that qualms around inflation is a matter of unease but not strong enough for the Fed to change their glide path. The Fed’s Beige book data confirmed moderate growth and this itself strengthens the Fed’s argument.
The game is not over yet as she will be in front of the Senate once again today for her second day of testimony. Traders would continue to build their short position if she continued to show her dovish side. The Fed is on a monetary policy tightening cycle so the overall picture should not be considered as dovish. We do think that the dollar index could soon find the support and the performance against currencies like Sterling, which could make headlines soon after the trend changes its direction.
Back in the UK, the focus would be more on the lending conditions and it would tell us vital information about the consumer confidence. Lenders raised their alarm during the last quarter about the unsecured loans and this could be an area which may face disappointment. Under that scenario, we should see some decent numbers for credit card lending. The wage data released yesterday did provide some help for the sterling. However, the effects of that are fading due to the lack of a gigantic push by wages to offset the impact of rising inflation.