Category Archives: FX News

A good start to the week for the pound following last week’s above-consensus UK inflation print and announcement of a General Election.

The pound has benefited on the back of this and is showing promising signs of strength heading into the new ‘shorter’ week.

Markets are now not expecting to see a rate cut in June and the earliest opportunity for a rate cut to happen would be August.

 For the EU, there were several ECB policymakers speaking yesterday. They spoke about the likelihood of an interest rate cut at next week’s policy meeting and one suggested that there may be a further immediate reduction in July.

Markets have fully priced in a reduction on the headline rate on 6th June that has seen the euro weaken.

 This afternoon for the US, we have the Home Price Index and Conference Board Consumer Confidence Survey.

The US dollar remains under pressure against both the euro and the pound as the latest measures of consumer confidence in the US have been declining of late, possibly due to the slump in inflation and lack of interest rate cuts.

For the UK and Eurozone it is a quiet day, therefore markets will shift their attention to tomorrows German inflation figures, Wednesdays US growth figures and Fridays French Inflation and growth figures.

The flash PMI results for May were mixed. In the United Kingdom, both sectors showed growth, while the services reading fell. Meanwhile, both Eurozone PMIs rose, while the manufacturing sector remained in contraction mode. Similarly, both of the US PMIs increased in May. 

The numbers, however, are unlikely to prevent the ECB’s rate cut in June. The publication had no significant impact on Eurozone market rate expectations. Currency-wise, after treading water in early trading, the dollar reclaimed the upper hand.

However, the biggest FX pairings were limited to fairly narrow ranges yesterday. As trade begins this morning, UK retail sales fell 2.3% in April (vs. -0.6% expected).

However, the impact on sterling was modest in early trading. There is a very light data calendar for the rest of today, so comments from central bank officials will be in focus.

This morning, we have Purchasing Managers Index figures in the manufacturing and services sector for France, Germany, United Kingdom and the European Union.

Across the board PMI data is set to show an expansion from their previous releases and it represents as inflation falls, business conditions and new orders improve.

 In the States, the total number of people that have filed for unemployment claims is set to come in at 220k.

 Following the UK CPI inflation release yesterday, Pound Sterling has been on the rise against all the other currencies in the G10, after it surpassed market expectations releasing at 2.3 percent (forecasted 2.1 percent).

 The Bank of England are now expected to delay an anticipated interest rate cut next month. Markets are forecasting three cuts this year from and interest rates to fall from 5.25 percent to 4.5 percent with the first rate cut likely to be in August.

 Pound Sterling has also been supported after Prime Minister Rishi Sunak announced a snap general election on July 04 to vote in a new government. GBPEUR in now trading at its highest level this year.

Sterling has been on the front foot in early trading this morning, following the release of UK CPI inflation data for April. 

Today’s level is the closest it has been to the Bank of England’s target of 2% in three years.

However, the Bank has signalled that interest rates, which have been hiked in recent years to restrain inflation, may be reduced this summer. Rates are currently at 5.25% (the highest in 16 years).

Yesterday, several central bank officials’ remarks were once again the focus of attention. ECB President Christine Lagarde reiterated that a rate drop in June was inevitable. In the United States, Fed Governor Waller stated that the next interest rate policy decision is unlikely to be a rise, but additional evidence that inflation is falling steadily to 2% is required before the Fed may decrease rates. Fed officials Bostic and Mester also stated that more information will be required before the Bank cuts rates.

Looking ahead, the overall calendar remains quiet for the rest of today. On the monetary policy front, the release of the most recent Fed FOMC meeting minutes will get some attention. Remarks from central bank officials will also be scrutinised.

The slow start to the week continues today, with the only major release of economic data being the Canadian Consumer Price Index.

However, later this evening Bank of England Governor Bailey will be holding a speech at 18:00. Investors will be sure to tune into this as the talk of a summer rate cut becomes more of a probability.

Looking ahead this week to Wednesday, the UK release their Consumer Price Index where inflation is expected to take a major drop towards the 2% target. Markets are forecasting a drop to 2.1% (from 3.2%). With the talk of rate cuts in the UK becoming more prominent, markets could see some volatility off the back of this release.

Following this the US will announce their Existing Home Sales, a key indicator in the state of the economy.

As the week goes on, markets are preparing themselves for further volatility with the release of PMIs across Europe.

The final release of note for the UK before the Bank Holiday is Retail Sales, markets are expecting to see a fall in this year on year.

As for the currency market, the pound has gained some strength against both the euro and dollar.