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After a strong week, the pound must now contend with inflation figures. Editorial credit: Susan Edmondson, via Shutterstock
Sterling sauntered into the new week after reaching its highest level against the euro in two weeks and its highest against the US dollar since early April.
All told, the pound gained two cents on the US dollar, while GBP/EUR picked up about 0.5%. The euro also had a strong time of it against the US dollar, advancing by about 1%.
Last week saw heavy scrutiny on the American economy, which helps to explain why the US dollar struggled. Despite a rather confusing and conflicting set of results, the general takeaway was that inflation was coming under control faster than expected.
Time will tell whether the dollar’s losses will indeed prompt the Federal Reserve to bring forward interest rate cuts, something markets deemed increasingly likely. Whatever you made of the figures, there was some relief that the figures were beginning to back up orthodox economic theory, i.e. that higher rates will inevitably lead to reduced demand.
While the pound may be tempted to bask in the glow of its recent strength, this week presents an altogether tougher challenge. UK inflation data will arrive on Wednesday, a release with the heft and significance to cause significant volatility.
Isabel Schnabel, a member of the European Central Bank’s (ECB) executive board warned against successive interest rate cuts in June and July. Speaking on Friday, Schanbel argued that a cut in July doesn’t look warranted and that the ECB should plot its moves carefully to avoid loosening too quickly.
Here’s what to look out for this week…
Speakers from the Bank of England and the Fed are due to give speeches today, ahead of more major figures tomorrow, including Andrew Bailey.
Wednesday sees UK inflation data for April arrive, as well as public sector borrowing figures. FOMC minutes follow from across the Atlantic in the evening.
We’ll then get a slew of European HCOB PMI flash reads from Europe, as well as UK services PMI from the S&P Global study.
UK retail sales and US durables goods orders then combine to wrap proceedings up on Friday.
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GBP: All eyes on Wednesday
The pound posted a storming performance last week, but that was in the absence of much to stand in its way. Inflation on Wednesday is a different beast entirely, and that could soon knock the pound off its perch.
GBP/USD: the past year
EUR: Steady progress
The euro has been making steady progress against the US dollar for the past few weeks. That’s been less true of it against the pound, but good news now that the hype around the ECB potentially cutting before the Fed has died down.
GBP/EUR: the past year
USD: Through to the other side
The US dollar wilted under the pressure of intense scrutiny last week. All in all, the impact was hardly disastrous and now it can look ahead to less hectic times with some optimism.
EUR/USD: the past year
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