UK inflation again higher than expected.

The German ZEW economic expectations index retreated to 4.1 for April from 13.0 the previous month and below consensus forecasts of a further net recovery to 15.3. The current conditions component, however, did recover to -32.5 from -46.5 and above market expectations of -40.0. The dip in expectations will maintain some reservations surrounding the Euro-Zone outlook.

US housing starts were little changed at an annual rate of 1.42mn for March from a revised 1.43mn the previous month and slightly above consensus forecasts of 1.40mn. There was, however, a sharp decline in building permits to 1.41mn from 1.55mn for February.

St Louis Fed president Bullard stated that US recession predictions ignore the strength of labour markets and that interest rates need to increase further given that there has not been much progress on inflation. He added that interest rates in a 5.50-5.75% range would be adequately restrictive.

Markets overall were held in tight ranges on Tuesday with a lack of major developments. Equities and yields overall were little changed which also dampened activity in currencies with EUR/USD unable to challenge the 1.000 level.

Canadian headline CPI inflation rate declined to 4.3% for March from 5.2% previously and in line with consensus forecasts. The core rate retreated to 4.3% from 4.7% and slightly below expectations of 4.4%.

The headline UK inflation declined to 10.1% for March from 10.4% previously, but this was significantly above expectations of 9.8%. The core rate was unchanged at 6.2% and above expectations of 6.0%.

Relatively narrow ranges prevailed on Tuesday with markets waiting for further economic evidence on both sides of the Atlantic. The Euro was resilient despite weaker than expected German ZEW data. US Treasuries failed to hold gains with gains little changed on the day.

EUR/USD hit highs above 1.0980 before settling around 1.0965. Narrow ranges again prevailed on Wednesday with EUR/USD edging lower to 1.0955.

The yen recovered from intra-day lows despite gains on Wall Street. USD/JPY dipped below 134.00 after the housing data before a recovery to above this level. USD/JPY posted gains to 134.65 on Wednesday.

The Swiss franc was unable to generate significant support. EUR/CHF edged higher to 0.9840 with USD/CHF around 0.8970.

Sterling continued to draw support from the latest wages data with higher than expected inflation data also underpinning the Pound. GBP/USD settled around 1.2425 from 1.2450 highs.

Commodity currencies were able to hold net gains AUD/USD settled around 0.6730 before edging lower to 0.6715 on Wednesday. USD/CAD traded just above 1.3400 as the inflation data curbed support.

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