Bank of England on deck, China inflation slips back and German CPI.

Sterling will be the centre of attention this morning with the publication of the latest Bank of England quarterly inflation report.

GBP's recent rebound has run into selling pressure over the last 24 hours on fears that the Bank of England will revise down its growth forecast for the UK economy, while at the same time revising upwards its inflation forecast for the next two years. The report is due at 9:30 am GMT, 10:30 BST (5:30 EST).

The report shouldnt contain too many surprises given that the CBI earlier this week downgraded its growth assessment of the UK economy for 2011, and the pound shrugged that off, however the major factor will be how dovish the report will be with respect to interest rate expectations.

A significant revision lower in the growth forecast is likely to mean that any anticipation of a move in interest rates, irrespective of inflation expectations, could well get pushed back into Q4 of this year, which in turn could weigh on recent sterling strength.

UK trade balance for March are out earlier, and are expected to climb to -7.5bn.

Yesterdays China trade figures showed that despite recent tightening measures, the economy is continuing to grow at a significant pace. This has been borne out by the publication of the latest CPI figures for April which came in at 5.3%, slightly above expectations, and only slightly down from last months 5.4%, but nevertheless still worryingly high.

Producer prices for April also remained sticky coming in at 6.8% while industrial production and retail sales figures, though slightly below expectations, also remained strong, coming in at 16.8% and 16.5% respectively.

This data, although mostly weaker than last months, still makes the likelihood of further fiscal tightening quite likely in the near term, especially given that new bank borrowing came in above expectations, which suggests that we could also see further hikes in bank reserve requirement ratios, maybe as soon as this week.

Despite last month's ECB hike, todays German CPI figures for April are still expected to remain elevated at 2.6% on an annualised basis, underpinning expectations of further rate hikes by the ECB, irrespective of the fiscal situation in peripheral Europe.

US trade figures for March out later, expected to increase yet again to -$47bn.

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By KM - Ashraf Laidi.com Staff