The pound strengthened across the board during the overnight trade on speculation that UK inflation remained at the highest level in almost 3 years. Consumer price data for May are released at 9:30, with the expectations for the CPI inflation to remain unchanged at 4.5% from April reading. MPC member Martin Weale said yesterday that Bank of England should increase the base interest rate in order to bring inflation back to target. According to Mr. Weale a more immediate rise in the policy rate would give the MPC more flexibility to respond to inflationary pressures. Separately, the May RICS survey showed the UK housing market going into reverse. The gauge reported that the prices fell by –28% in May from –21 in the previous month. Expect the pound to remain in current ranges should we see the inflation release coming out in line with expectations.
The euro remained under pressure against most of its major rivals on speculation EU finance ministers will struggle today to find the solution for Greek debt crisis. An agreement between the member states is the only constructive solution for Greece as the IMF (International Monetary Fund) can’t pay its share of a 12 billion euro in July unless the EU cover for the residual of 30 billion euro bailout plan. In addition, Standard & Poor’s rating agency yesterday lowered its long-term sovereign credit ratings on Greece to CCC, with negative outlook. Expect for the single currency to remain volatile against its major rivals for as long as EU delay the resolution on a bailout package for Greece.