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    European Session – Sterling underperforms as all eyes on Brussels, oil rally ends

    The currency markets reacted to risk-off sentiment in the usual fashion today. The US dollar strengthened against most majors except versus the safe haven yen. The global equity market rally from earlier this week fizzled out today. The sharp rally in oil prices since last Friday halted yesterday and prices fell back below $30 today. The biggest factor behind the plunge were comments from the Saudi oil minister who said on Thursday that Saudi Arabia isn’t ready to cut oil output.

    The euro fell against the dollar to break below $1.11. Sterling traded lower and fell below $1.43 to come close to three-week lows as all eyes are on Brussels.

    Strong UK retail sales data were shrugged off as the market preferred to focus on more important risk matters for the pound, such as Brexit concerns. The EU Summit is still underway in Brussels, where UK Prime Minister David Cameron is negotiating a deal on the terms of Britain’s EU membership. Sterling has been under pressure the most against the dollar in anticipation of the conclusion of the Summit, and it is down half a percent on the day despite a 2.3% retail sales gain for January, which was more than three times the 0.8% expected.

    The yen was stronger than the dollar today as it was supported by the broader tone of risk aversion. The safe haven currency has been gaining since February 15. Despite US core inflation data rising the most since August 2011, the dollar is back below 113 yen. CPI excluding food and energy, increased 0.3% month-on-month in January to record the biggest gain in four and a half years. This followed a 0.2% rise in December. Inflation is monitored closely by the Fed, which has a target rate of 2%.

    Meanwhile Canada also reported inflation data today. January CPI came in at its highest since November 2014 after accelerating at a 2% rate in the twelve months to January. However, retail sales fell 2.2% in December. The oil-linked Canadian dollar was weaker today versus the greenback as it was being weighed down by falling oil prices. USD/CAD rose for a second day to break above $1.38.

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