The US Dollar (USD) remained in pole position on Monday with a combination of slightly stronger-than-expected US retail sales data and fragile risk conditions underpinning the US currency.

Markets continue to expect that the Federal Reserve will lag European central banks in cutting interest rates and the Pound to Dollar (GBP/USD) exchange rate dipped back to 1.2420 after failing to regain the 1.2500 level.

UK labour-market data failed to support the Pound with global developments and UK inflation crucial over the next 24 hours with Bank of England (BoE) expectations very important for the pound.

UK labour-market data was mixed with an increase in the unemployment rate to 4.2% in the three months to February from 3.9% and above expectations of 4.0%, but headline earnings growth held at 5.6% compared with expectations of a slight decline to 5.5%.

Wednesday’s UK inflation data will be another key piece of evidence for the BoE.

Consensus forecasts are for the headline inflation rate to decline to 3.1% from 3.4% previously with the core rate retreating to 4.1% from 4.5%.

Weaker-than-expected data would increase speculation that the Bank of England will cut interest rates at the June policy meeting.

Comments from incoming Deputy Governor Lombardelli will also be monitored on Tuesday although she is not due to take up the appointment until July 1st.

Globally, markets see around a 20% chance of a June rate cut by the Federal Reserve and 40% of a July move.

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Matt Simpson, senior market analyst at City Index commented; “I just see no chance of a July cut, assuming we’re all looking at the same data.”

In contrast, there are strong expectations of a June ECB rate cut and the dollar index has posted fresh 5-month highs.

Overall risk appetite will inevitably remain fragile with further concerns over the Middle East situation.

In particular, there will be further nerves over Israel’s potential retaliation for the weekend missile attack by Iran.

Comments from central bank speakers will be watched during the day as the IMF meetings continue in Washington.

Fed Chair Powell, Bank of England Governor Bailey and Bank of Canada Governor Macklem are all due to participate in panel discussions during the day.

Markets will be looking at any comments inflation trends and interest rates.

As well as Wednesday’s UK data, Canada will release the latest consumer prices data during Tuesday with New Zealand quarterly data on Wednesday.

For Canada, consensus forecasts are for a 0.7% increase in prices for the month with the year-on-year rate increasing to 3.0% from 2.8% previously.

Little change is expected in the core rates for the month.

Weaker than expected data would increase expectations of a near-term Bank of Canada interest rate cut.

For New Zealand, consensus forecasts are for a 0.6% increase for the first quarter of 2024 after a 0.5% figure previously.