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Focus shifts to the euro this week with the ECB's interest rate decision.
Last week’s glut of European inflation figures raised the stakes for the European Central Bank (ECB), which is preparing to announce its latest interest rate decision on Thursday (6 June.)
All signs had pointed to it becoming the first major central bank to cut borrowing rates this year. However, the eurozone’s harmonised inflation rate climbed to 2.6% in May at the first read, above April’s 2.4% and higher than forecasts of 2.5%.
The one slight comfort for policymakers came from France, where May’s preliminary figures came in below expectations – 2.2% as opposed to 2.4%. Nonetheless, there was some suggestion on Friday that the figures could give the ECB pause. The odds are still just about tilted in favour of a cut, but that decision looks altogether more uncertain than it did a week ago.
It was a different story for the US on Friday, as personal spending and income metrics undershot expectations in April. Monthly core PCE price rises, frequently cited as the Federal Reserve’s favoured method of measuring inflation, meanwhile rose by 0.3%, matching market forecasts and the pace of the previous two months.
Over the course of last week, GBP/EUR fluctuated by around a cent but ultimately fell back from 21-month highs. GBP/USD also treaded water despite reaching a two-month high, while the euro advanced on the US dollar by around half a cent.
We always bang the drum for implementing a robust risk management strategy in your business, but it’s times like these that really underscore our point. Currency pairs are currently extremely volatile, with this dynamic further stoked by a constant stream of headlines. Amid it all, could your business afford to leave its budget exposed to this risk? Across our twenty years of experience, we’ve found the answer is almost never yes.
Here’s what to look out for this week…
Europe’s attention will be squared on Thursday’s interest rate decision, but before then we’ll get the final HCOB manufacturing PMI for May. Monday also brings US ISM Manufacturing PMI, which is expected to have climbed again in May.
JOLTs job openings from US are the main event on Tuesday, with ISM services PMI featuring mid-week.
Thursday is dominated by the ECB, before German balance of trade and US unemployment finish up proceedings.
Throughout all of that, we’ll be keeping our eyes trained on the various psychodramas playing out on either side of the Atlantic. The UK is getting into the swing of its election campaign, while Donald Trump’s legal woes are once again in the spotlight.
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GBP: The countdown begins
The UK will be going to the polls in just over a month, and for the pound, the countdown has well and truly begun. Sterling has ridden the wave well so far, but there’s plenty of time for markets to shift between now and July.
GBP/USD: the past year
EUR: Late jitters
Thursday and Friday’s inflation news gave the ECB pause for thought. The euro briefly climbed as the prospect of rate cuts appeared diminished, but that appeared to be something of a kneejerk reaction. Whatever happens, the euro is likely to see volatility this week around the decision.
GBP/EUR: the past year
USD: Spending sinks
Consumer spending rose by 0.2% in April, well down from March’s 0.7% growth. With income also on a downward trajectory, that prompted some US dollar softness on Friday afternoon.
EUR/USD: the past year
For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business account manager on 020 7898 0500 or your Private Client Account Manager on 020 7898 0541.
