Money markets were dealt a surprise as the Consumer Price Index (CPI) rose in the UK to 3.5% up from 3.4% in February according to the Office for National Statistics. The ONS blamed higher food prices specifically soft drinks, bread, cereal, meat, fruit and vegetables coupled with rises in clothing & footwear.

However there was some good news as utility bills were lower than one year ago following energy companies reducing tariffs in February last year.

All eyes will know be on the Bank of England as this latest rise could reduce the likelihood of additional Quantitative Easing in next months MPC meeting but with stuttering growth the Bank of England may have no choice.

So far today in the UK we have seen the UK Jobless Claims figures fall for this first time since last spring.

Unemployment fell by 35,000 to 2.65m according the ONS leaving the overall rate at 8.3%.

Furthermore we saw voting in the Bank of England for interest rates and QE voting come in at 9-0 and 8-1 to keep rates on hold and maintain the contribution at £3.25bln.

Sterling has rallied as a result of these figures and currently sits at 1.2212 against the Euro the highest reading since September 2010. Cable has also risen against the US Dollar and is fast approaching the key psychological level of 1.60 currently trading at 1.5979.

In other financial news Warren Buffet has announced he has stage one prostate Cancer which will create further hype around the successor to his Berkshire Hathaway business.

As for the rest of this week we are pretty light on data with inflation data in New Zealand, Canada and the Germany of any real significance.

The European Central Bank usually meets on the first Thursday of each month but the Easter weekend coming up means today is the day. Expectations are for the ECB to leave rates on hold and no change to the non standard liquidity measures.

The upcoming holiday will also see some liquidation of risk positions so expect static or slight declines in equity markets and riskier currencies.

The Dollar is benefitting not only from the reduction in risk sentiment but also last nights FED minutes.

The tone was one of cautious optimism over the US economy and the markets interpreted that as a reduction in probability of another round of quantitative easing which is USD positive.

UK services PMI made it three in a row better-than-forecast data releases, following on from manufacturing and construction earlier in the week.

The data paints the UK economy in a positive light, but it is important no to get carried away.

The OECD thinks the UK has already re-entered a double dip recession and we need to wait for the Q1 GDP figure later this month before we get a clear picture of the UK economy.

Sterling certainly likes the data, rising against both the euro and Dollar in recent trade.

Markets will be winding down over the coming days, but the remaining things to watch for are the Bank of England meeting tomorrow and the Non-farm payrolls on Friday.

As Wise Money blogged yesterday the official figures from the Office for National statistics indicated that the UK economy fell more quickly towards the end of last year than initially thought. GDP fell by 0.3% in Q4 last year as opposed to the 0.2% reported. This fall shows a change from the 0.6% in the previous quarter and takes the overall growth figure to 0.7% down from 0.8% estimation.

One of the main drivers behind this fall is the 0.7% drop in manufacturing followed by 0.2% construction and services at 0.1%.

So far today Nationwide have revealed that house prices were pushed lower than a year ago for the first time in six months following a 1% fall in March.

Nationwide are attributing the slow down to changed in the stamp duty rules causing a “headwind” in an already difficult environment.

Since the budget first time buyers must now pay 1% on properties worth more than £125,000 following a two year holiday and there’s a new super stamp duty for properties sold over £2 million where a 7% payment is now due.

The figures were based on Nationwide mortgage data and indicated falls in all but three regions which were London, North England and Scotland.

The combination of these stories has put Sterling under pressure so far this morning with cable dropping off from the mid 1.59s yesterday to 1.5891 at present but up slightly against the Euro at 1.1971.

With the relative calm in the markets investors are becoming increasingly comfortable with the lack of movement in currencies.

This in line with the fall in risk aversion as market concerns over US growth and Eurozone debt problems retreat.

In the short term there is little catalyst to shake markets out of their trance and we could see euro/US Dollar continue to drift higher.

Certainly, firmer risk appetite, is a positive driver for the euro while the pull back in US bond yields has restricted the Greenback.

Following an indifferent Asia trading session overnight where Japan kept interest rates at 0.1%, the market now awaits key data from the Europe and the US to drive sentiment for the rest of the week.The Greek debt swap deal has certainly added to this lack of direction providing little motivation to the markets yesterday.

The deal that amounted to a swap of £149 billion worth of bonds for a mix of new instruments ranging in maturity from 11 to 30 years had a relatively low uptake leading to bond yields from 14-19 %, the highest in Europe.

It appears the market is sceptical about this latest attempt by the Greeks to fend off their inevitable default and thus is looking for higher yields over shorter periods.

The euro continues its resilience at currently trades at 1.3142 against the Dollar.

Elsewhere in Europe today we have the German ZEW survey where we get an insight into medium term forecasts about Germany’s finances.

Over to the US and the Greenback should not be concerned by tonight’s FOMC meeting.

We may see the Dollar rally if Fed Chairman Bernanke is slightly more positive in his statement with further support from increasing theories that the Fed will begin on some form of sterilised QE shortly.

This coupled with expected stronger retail sales and positive National Federation of Independent Business (NFIB) report of small business bodes well for the US recovery and for President Obama in an election year.

Finally the UK Job market may be “turning the corner” according to a survey completed by recruitment firm Manpower.

The news comes ahead of the latest data tomorrow which are expected to show a further rise in unemployment.

Positive sentiment can now be found around the country in the East Midlands, North West and particularly London due to the Olympics.

Today Sterling is slightly firmer against the Euro and the Dollar trading at 1.1917 and 1.5667 respectively.

Another expectation beating employment report from the US on Friday has the markets in buoyant mood this morning. The headline number was 227K jobs created in February against a forecast of 210K, with strong upward revisions to both December and January numbers.

This marks the third straight month of strong jobs growth with gains spread across different sectors of the economy.

One negative was that construction jobs showed flat growth for the first time in a couple of months.

Interestingly we have again seen the Dollar strengthen on the back of positive US developments, which flies in the face of the risk-on, risk-off paradigm that has dominated FX trading in the US Dollar over the last few years.

Commodity currencies initially surged on the news but have cooled off as we start the week.

Looking ahead this week we have several big ticket releases to look forward to.

Tomorrow German economic sentiment is followed by US advanced retail sales and the Fed interest rate decision.

The market expects a strong increase in retail sales from last month and Friday’s employment report is fuelling further optimism of a stellar number.

The risk therefore is to the downside in terms of the Dollar if we get a disappointing figure.

The FED meeting should be a non-event, but talk about sterilized QE over recent days by the Fed Chairman will keep market interest high.

Also worth watching is the Swiss Interest rate decision, not for interest rates directly but for chatter over an increase in the Swiss Franc peg which, if undertaken, would cause significant movements across the FX markets.

Encouraging economic developments provided wise money markets with an appetite for risk again. Despite weaker than expected US durable goods orders, a rise in US consumer confidence to its highest since February last year provided stock markets and risk assets with an overall a boost.

It was a similar story in Europe as Italy held a successful auction of 10-year debt at a lower than expected cost at the same time as Portugal approved a third review of its bailout agenda.

However, there was some negative news, with the ECB momentarily deferring the eligibility of Greek bonds as security for its backing and Eire calling a referendum on the European fiscal compact.

Nevertheless, expectations of a strong take up at today’s ECB second 3-year Long term refinancing operation (LTRO) should keep markets on the straight and narrow for the rest of this week.

As for the US Dollar and given the upbeat equity market mood overnight it is no shock that the Greenback was on the slide as the euro appears determined before today’s 3-year LTRO by the ECB.

Bernanke’s Semi-Annual Monetary Policy Report later today will provide the Dollar some bearing but no major surprises are expected.

The euro will continue to rally against the US Dollar if we are correct about a strong euro 600-700 billion take up at the LTRO but it will interesting to see if the 1.35 level can be breached.

The Bank of England voted as expected to keep interest rates on hold and this decision was achieved with a unanimous 9-0 decision implying that the base interest rates will not be rising anytime in the near future. A slight weakening factor for Sterling as an increase to the interest rate would add to the underlying value of the currency.

This hardly came as a surprise as an increase in the rate would cripple growth in what are troubled times.

The more interesting vote was the 7-2 result over quantitative easing.

Seven members voted in favour of the £50 billion extra that has been pumped in while 2 members (David Miles and Adam Posen) wanted £75 billion to be added.

This caused most of this morning’s weakness in Sterling as there is potential that more QE could be pushed into the UK economy.

The BoE also sees credit remaining tight and looks for global growth to weaken.

Wise Money had to mention the Greek saga which seems to be coming to a close, but the main talking point will be if problems re-open looking ahead to the rest of the year.

It is thought the new loan of €130 billion will cover Greece in the short term, but what will happen when that starts to run out.

Various countries that form the IMF are looking for officials from the European Union, ECB and IMF to monitor the Greek government from Athens and make sure the cuts actually take place.

Wise money markets will be influenced largely by developments in Europe to start the week, however President’s day in the US could be mean a quiet start. Ongoing US data continues to finish above expectations as shown by the latest gains in retail sales, manufacturing surveys, jobless claims and industrial production.

The overall recovery is gaining momentum and the Greenback is at last showing some signs of a rally on the news.

Increasing US bond yields have offered the Dollar some momentum, although the momentum has been curtailed by elevated bond yields elsewhere.

However, in spite of continued rumours of further Fed stimulus the Dollar appears to be somewhat on a stronger path in the short term.

In a fairly quiet week of headline data with the US being closed housing data will be the main item for digestion this week.

Over to the never ending merry-go-round of the second Greek bailout.

If approved and the deal goes ahead, the week should begin on a positive note for the single European currency.

The euro rally will be influenced by the release of flash February purchasing managers’ indices (PMI) and the German IFO business confidence survey.

On the other hand, conjecture of a Greek euro exit will not recede swiftly and investors will likely revolve between ‘risk on’ and ‘risk off’ based on the latest views from Greek or European officials.

Everyone should hold on it could be a rollercoaster ride this week.

The wise money thinks the Greek government are finally close to a deal with private and official sectors judging by the late afternoon surge in the euro yesterday. The Euro-Dollar pushed back above 1.32 driving Sterling –Euro back through 1.20 and cable above 1.59.

Whether this turns out to be the good news that the market is currently expecting, or another short term rally followed by a painful pull back remains to be seen, but there is reason to remain sceptical given the number of times over the last two years news about a Greek rescue deal moved the market in exactly the same way; Euro positive on the rumour, retracement on the fact.

The deal was supposed to be done and dusted by yesterday night, but yet another delay blamed this time on the late arrival of the official documentation means we are still waiting for official confirmation.

Putting geopolitics aside for a second, we have the rather important central bank meetings tomorrow in the UK and Euro-zone.

It’s unlikely that ECB President Mario Draghi will be drawn to comment in any detail on the Greek deal, and with no change to interest rates expected the European leg of the meetings should spring few surprises.

The Bank of England are expected to inject another £50bn via gilt purchases into the UK economy. It would come as a great shock to the markets if they did not commit to further easing given how dovish recent minutes and communication from MPC members has been.

Wise Money says keep your hard hats on-  the crazy levels of volatility across the FX markets will continue today as we look forward to the US employment number this afternoon. It will be nice to get back to economic data driving moves in currencies, given trading has been totally dominated by central bank announcements and political news hitting the wires.

In no particular order, the market moving events have been US Fed Chairman Bernanke speaking yesterday, the Chinese premier suggesting they may invest further in the European bail-out fund (after a quick whisper in the ear by German Chancellor Angela Merkel) and the will they won’t they saga still playing out over Greece.

Throw some disappointing American data into the mix, stir together and sit back and watch the Euro-Dollar move like a yo-yo.

The Bank of England arch dove Adam Posen has long argued for more QE before it became fashionable again, and he suggested yesterday than the Bank should not stop at buying Gilts in the easing process.

Mr Posen thinks corporate debt should be included in the debt the bank buys, as the current mechanism supposed to lower rates on corporate debt is broken because the banks just park newly minted cash on their balance sheet and shun assets perceived as higher risk.

The BoE are expected to announce another £50 billion of QE at their meeting next week, but it will be gilt only.

It will take time, a considerable change in thinking in the Bank or a serious deterioration in the economic climate in the UK for Mr Posen to get his way.

The expectations this afternoon are for the US economy to add around 150,000 jobs in January, lower than December but expected by the market because of the effect Christmas has on the job market.

As we mentioned before, the way the US Dollar reacts to positive data is changing from risk-on, risk-off to the complete opposite, where the Dollar rises on positive data.

Trying to guess which way the Dollar moves this afternoon is becoming increasingly difficult, which means trading will be choppier than usual in the build-up and immediately after the announcement.