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After the UK's turn in the sun, focus shifts to the US dollar this week.
Last week was all about the UK, as the Bank of England hinted at interest rate cuts and GDP expanded by much more than expected in the first quarter. Now it’s the US’s turn to hog the limelight in what could be a crucial week for the Federal Reserve.
Currency markets didn’t betray much emotion when confronted with last week’s action. Even news that the UK had formally exited its brief recession didn’t cause much in the way of movement as the US dollar’s strength helped it plug any losses.
After the Bank of England suggested rate cuts in June weren’t out of the question, the Bank’s chief economist tried to contain overexcitement. Echoing governor Bailey’s comments, Huw Pill said focusing too much of June as the start of the loosening cycle would be ‘ill advised’.
All in all, sterling lost just over half a cent to the euro and the US dollar over the course of last week. EUR/USD peaked and troughed a few times but ultimately played out a stalemate to finish the week largely unchanged.
On Friday, the University of Michigan consumer sentiment fell to its lowest in six months in May’s preliminary read. The headline figure fell to 67.4 from 77.2 last month, as consumers feared that inflation, unemployment and interest rates were moving in the wrong direction.
Sterling managed to keep its head down and have a quiet week last time out. That will probably be chalked up as a win given the risks associated with key data and interest rate decisions. However, as is always the case when dealing with currency markets, you never can tell when more volatility will be heading down the pipeline.
Here’s what to look out for this week…
The UK will report its unemployment figures for March on Tuesday, which also brings the German ZEW Economic Sentiment Index, US PPI and a high-profile speech by Jerome Powell.
Wednesday is the key day for the Federal Reserve as a slew of US inflation data arrives.
We’ll then see US building permits and initial jobless claims on Thursday before the week ends on a quieter note.
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GBP: And breathe
Sterling managed to navigate a pretty perilous Thursday and Friday without much deterioration. There was a minor fall around the Bank of England decision, but nothing major by any stretch. A week without much macro detail may just do it some good.
GBP/USD: the past year
EUR: No news is good news
We haven’t written much about the euro in recent weeks and that’s probably a good thing. The euro is riding a decent wave of stability, although currency veterans will know how quickly that can change.
GBP/EUR: the past year
USD: Watching like hawks
This week’s heavy dose of US data will give plenty of ammunition for those wanting to pile pressure on the Fed. Each tranche of data will see markets pouring over it like hawks, or potentially like doves…
EUR/USD: the past year
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