UK Data on Focus

Sterling weakened yesterday after headline CPI for March came in well below consensus at +4.0% y/y (cons. +4.4%). UK retail sales for March were disappointing, falling by -3.5% y/y (the drop in total sales is the worst since 1995). This is convincing evidence that austerity measures are feeding through into consumer demand. The focus today shifts to the labour sector and jobs figures. ILO unemployment for the three months to February is expected to remain steady at 8.0%. The MPC minutes the coming week will provide further insight on where the debate reached among policy members, but likely the split remains strong with arch dove and arch hawks.

FX price action was relatively subdued during the Asian session, given the lack of news and data flow. New York Fed President Dudley said QE2 is not designed to influence the dollar and the risk of deflation is now "greatly diminished." But until market participants get more clarity on the Fed's next steps, the dollar will be prone to weakness when risk sentiment is positive. It’s safe-haven status could also remain unclear, judging by recent performance vs. the Swiss franc and the yen. Retail sales and the Fed Beige Book are due today.