The pound fell to session lows against the dollar tomorrow after data showed that the U.K. entered into negative inflation last month for the first time since 1960. GBP/USD was down 0.63% to 1.5555 from around 1.5576 ahead of the data. The Office for National Statistics said the annual rate of inflation dipped 0.1% in April after remaining unchanged in the previous two months. Economists had expected annual inflation to remain unchanged at zero. Consumer prices rose just 0.2% from a month earlier the ONS said, compared to forecasts for an increase of 0.4% after a 0.2% increase in March. The OSN said the decline in inflation was due in large part to lower transport costs, but alcohol, clothing, and household goods were also all cheaper compared to the same month last year. Last week Bank of England Governor Mark Carney said the central bank believed inflation could turn negative in the short term, but reiterated that prices would then pick back up in the coming months before returning back to its target of 2% in two years’ time. Recent data showing that wage growth is picking up have offset fears over the possibility of a prolonged period of deflation. GBP/USD is trading around the 1.5480 level this morning.
The Stoxx Europe 600 Index was little changed after rallying 1.7 percent yesterday as Executive Board member Benoit Coeure said the ECB will increase bond buying in May and June. The gauge rebounded 4.1 percent from its two-month low earlier in May through yesterday. Investors are watching developments in Greece as the ASE Index closed at its highest level since March 6. ECB policy makers are discussing aid for the nation’s banks today. The euro fell to fresh two-week lows against the dollar on Wednesday as concerns over the prospects of a Greek default weighed ahead of a critical June 5 deadline for Athens to reach a deal with its creditors. EUR/USD was down 0.61% to 1.1070, the lowest level since May 5 from 1.1148 late yesterday.
The dollar traded at a two-week high versus the euro and extended gains against the yen, while Treasuries advanced before the Federal Reserve releases minutes of its last meeting. Oil rallied for the first time in six days. The Bloomberg Dollar Spot Index climbed 0.3 percent by 8:15 a.m. in London, after its biggest two-day advance since 2011. The euro slipped 0.6 percent and the yen dropped 0.3 percent. The yield on 10-year Treasuries fell four basis points. Standard & Poor’s 500 Index futures were little changed. U.S. oil rose ahead of a stockpiles report. The dollar extended a rebound from a four-month low as the highest new-housing starts since 2007 reignited speculation about when the Fed will raise rates, underscoring the divergence of U.S. monetary policy from Europe and the Asia Pacific. The Bank of Japan meets tomorrow to review its stimulus policies. Dollar/yen reached the 121 level this morning, hitting the 8 year high. However, whether the dollar keeps its strong uptrend remain uncertain.