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Devata Tseng

UK Retail Sales Fall on Rising Inflation and Slow Wage Growth

UK labour market data for March will be released at 09:30 BST including claimant count, ILO unemployment rate (from Dec to Feb) and average earnings (from Dec to Feb). The data will likely affect the strength of GBP and GBP crosses. GBP/USD hit a 1-week high of 1.2500 this morning, helped by the weakening of the dollar.

Bank of England Gorvernor Carney will make a speech at 09:30 BST this morning. We will likely get clues about the prospective measures that the BoE will likely take to cope with rising inflation, slowing wage growth and Brexit uncertainty.

The ILO unemployment rate has seen a downtrend since early 2012. UK average earnings, including and excluding bonus (from Dec to Feb), has seen a moderate uptrend in 2016. However, the increase of average earnings, excluding bonus, (from Dec to Feb) has slowed down since the beginning of this year.

UK inflation for February moved above the Bank of England’s 2% target for the first time since 2014. UK CPI (Mar), released yesterday, was 2.3% in line with expectations and the previous figure. Core CPI (Mar) fell to 1.8% in March from 2% in February. Although the latest inflation figures showed a slight slowdown the inflation uptrend is likely to continue. If the pace of wage growth is slower than the pace of inflations rise, resulting in consumers cutting down on their spending on clothing, non-food and non-necessities. It will lead to a slowdown of economic growth.

The British Retail Consortium (BRC) announced on Tuesday that UK retail sales fell by 1% in March (YoY). UK total sales edged up by only 0.1% in the January to March period marking the slowest pace of growth post the financial crisis. Non-food sales fell by 0.8% in the January to March period marking the biggest decline in nearly six years.

The dollar index plunged around 0.31% on Tuesday, falling from the psychological resistance level at 101.00 and hitting a 2-day low of 100.49. This morning the dollar index keeps on weakening thereby pushing gold prices up, spot gold hit a 5-month high of 1279.67. FOMC voting member, Neel Kashkari, was the only member to dissent the Fed’s rate hike decision in March. He stated his view on Tuesday that “there is still slack in the labour market and inflation needs to be higher”.

The Bank of Canada will announce its rate decision this afternoon at 15:00 BST. It will be followed by the BoC’s Gorvernor Poloz’s speech at 16:15 BST. Although Canadian economy is improving, however, the US economic outlook is still uncertain under Trump’s administration. The BoC is likely to keep rates on hold for the near future.

Thursday sees the release of Australian employment change and unemployment rate for March at 02:30 BST. German CPI for March will be released at 07:00 BST; it will likely affect the strength of the Euro and the trend of the DAX index.

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