Sterling was suffering more than most yesterday, not impressed with weekend political developments, with the ever-present ‘Brexit’ cloud also hanging over it. Given these themes, the inflation data (released 09:30 GMT) will likely be of secondary interest, unless we see a major outlier from the expected small nudge higher in the YoY rate from 0.3% to 0.4%. The interest rate market remains more inclined towards a cut rather than hike in rates at the present moment in time, although with risk only priced around 10% towards the end of the year. We also see government borrowing figures published at the same time, which will perhaps be of greater interest given the ongoing discussions and changes being seen in the wake of last week’s budget.
After a two day turn-around, the dollar is weaker overnight even after comments from two Fed officials (Williams and Lockhart) suggesting that the next move could come as early as April. But both these are non-voting member this year, so the market took their comments with a degree of scepticism. Elsewhere, the single currency will be watching the latest PMI data early on, with provisional data for April released. In overnight trading, then yen has been the standout, weakening further against the dollar and pulling USDJPY away from the 110.67 low of late last week. With the week shortened by the Easter holiday on Friday (in some countries), trading is likely to remain on the choppy side as market liquidity falls below normal levels.