GBP Deflated by Lower CPI, US Awaits Housing

UK CPI declines; IMF urges further easing; public sector data distorted; Fitch cuts Japan to A+; EOCD sees continued growth in the US. Existing home sales, Richmond FED manufacturing and Eurozone consumer confidence are next. Last nights Premium Intermarket Insights issued 2 shorts on GBPUSD, charting the recurring cycles in UK CPI as an argument for a lower sterling. See more below.

The greenback is stronger across the board in the ongoing session. Major European equities are gaining nearly 1% and the weakest currency is NZD.

GBPUSD dropped from 1.5840 to 1.5762 after consumer inflation in the UK eased to 3% in April from previous 3.5% y/y which is the lowest level since 02/2010. This means that the BOE governor was not required to write the inflation letter to the treasury today. Core CPI printed 2.1% which is a level not seen since 11/2009.

The IMF urged the UK to consider further monetary easing and possibly even a rate cut below current 0.5%. At the same time it acknowledged substantial progress on budget position.

Public sector net borrowing showed GBP 18.8 bln surplus in April after 15.9 bln deficit a month earlier but the data is distorted due to Royal Mail pension plan transfer onto the government balance sheet.

USDJPY moved to 79.80 after Fitch Ratings cut Japan's long term rating to A+ with negative outlook stating high and rising public debt ratios.

In other news, the OECD reported that the US growth should continue as confidence is picking up but urged the FED keep accommodative policy; JP Morgan trading losses are expected to rise up to USD 7 bln from initial estimate USD 2 bln and FT reports that Greek banking system is being propped up by EUR 100 bln emergency liquidity provided by its central bank which was approved by the ECB. Due to inflation risks, emergency liquidity assistance (ELA) over EUR 500 M needs to be approved by the ECB.

The US session will bring existing home sales that are expected to rise in April to 4.62M from 4.48M, Richmond FED manufacturing that is seen lower in May at 12 from 14 and Eurozone consumer confidence that is anticipated to worsen to -20.5 in May from April's -19.9. All reports are due at 10:00 am ET.

The trading ideas in Mondays Premium Intermarket Insights involved wider targets in GBPUSD than our usual Insights. AUDUSD long was filled, while gold shorts remain in progress http://www.ashraflaidi.com/products/sub01/access/?a=638 Nonsubscribers can get a free 1-week trial here: http://www.ashraflaidi.com/products/sub01/