There were a few notable moves in FX on Tuesday. Despite weaker than expected CPI data, sterling managed to quickly reverse all of the initial losses, squeezing out a lot of shorts in the process. Sterling was 0.7% firmer against the euro through the day. Against the dollar, the euro finds itself not that far away from the year’s lows (currently at 1.1753 from yesterday). There remains an ongoing focus on next week’s ECB meeting, which has continued to put downside pressure on the currency. As an aside, also not that the European Court of Justice announces a non-binding legal opinion on the ECB’s 2012 program (not implemented). This is of some interest given Germany’s on-going concerns regarding the efficacy of the ECB’s QE program that is likely to be outlined this quarter.
The main overnight news has been seen on the Aussie, with the currency down 1.2%, mostly on the back of the sharp decline in copper prices. As we’ve mentioned before, the Aussie has traded less like a commodity currency in the past couple of years, but the linkage is not totally broken when we see extreme moves such as the 5% decline seen overnight.
For today, US retail sales data is see at 13:30 GMT. The headline rate is seen falling slightly by 0.1%, with the ex-autos and gas measure rising a more robust 0.5%. The past three months have seen US gasoline pump prices fall by a third. What we have to start looking for now are stronger signs that households are spending the money saved elsewhere in the economy in the data released over the coming 1-2 months.