The Euro added 0.2 percent against the US Dollar in overnight trade, capitalizing on broad-based selling of the safe-haven currency, but gains were kept modest by lingering sovereign debt fears. The British Pound outperformed the single currency, rising as much as 0.3 percent ahead of what is forecast to be a strong UK CPI reading, but the report’s supportive powers seem inherently limited (see below). Euro Session: What to Expect UK Consumer Price Index figures headline the economic calendar, with expectations calling for the headline inflation rate to remain at a 30-month high of 4.5 percent in May. The outcome’s implications for interest rate hike expectations – and thereby for the British Pound – appear limited however considering the Bank of England has clearly indicated it is prepared for a price growth rate north of 5 percent over the short term, dismissing it as owing to temporary factors and arguing that medium-term price stability remains secure. In fact, there is some indication that the markets are in agreement, with UK 5-year breakeven rates – a measure of investors’ inflation expectations derived from bond yields – trending broadly lower since early April. On the sentiment front, another supportive batch of Chinese economic data has produced dramatic gains across stock index futures tracking key European and US equities benchmarks, pointing to a continued recovery risk appetite and promising losses for the safety-linked US Dollar and Japanese Yen against their leading counterparts. Futures tracking the SP 500 – the go-to proxy for global shares at large – added as much as 0.8 percent ahead of the opening bell in Europe. Optimism may prove short-lived however with US Retail Sales expected to decline 0.5 percent in May, marking the first drop in a year and undermining global economic growth prospects.

Source