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Foreign Exchange Analysis ~ 05 June 2023


GB Pound

What happened last week?

Despite a quiet economic calendar in the UK, Sterling rallied midweek on the back of data out of the US and Eurozone.


What to watch for in the short-term?

Sterling price action this week will likely be determined by demand for other G10 currencies. Following the debt ceiling agreement, Cable should see some stabilisation ahead of June’s interest rate announcements. GBPEUR could have a choppier week with Eurozone GDP released on Thursday.


With YoY inflation materially lowering from the multi decade highs last year, the BoE has one more inflation print to dissect before June’s interest rate meeting. Due to Bailey’s focus on core inflation in May’s announcement, GBP bulls will be looking for a hot core print to fully price in a 25bp hike.


What about the coming months? While a 25bp hike in the UK and a pause from the Fed would be a positive in the near term, we see America’s stronger economy pushing GBPUSD lower in the coming months.


For EURGBP, the changing interest rate differential could push EURGBP toward 0.90 this summer.


Calendar

Thursday 23.01 GMT | UK Retail Sales


US Dollar

What happened last week? While the suspension of the debt ceiling until 2025 failed to move the Greenback upward, Friday’s hot nonfarm payroll data caused some Dollar appreciation. What to watch for in the short-term? Fridays nonfarm payroll data signalled to markets that the US labour market shows no signs of slowing down (339k Vs 190k consensus). While the base case for June’s announcement is a pause from the Fed, the latest slew of jobs data suggest the Fed could hike rates higher if inflation data on the 13th fails to lower. Nevertheless, markets currently price in a 25-30% likelihood of a hike in June. What about the coming months? For GBPUSD we see the Greenback strengthening in H2 particularly if the BoE decreases rates in Q4. Calendar Thursday 12.30 GMT | Initial Jobless claims Friday 13.30 BST | US Durable Goods Orders



Euro

What happened last week?

GBPEUR appreciated last week, driven mainly by HICP data that came in lower-than-expected (6.1% Vs 7% in April).


What to watch for in the short-term?

Although last week saw lower inflation in all of the large European economies, Madame Lagarde’s most recent speech still stated that the ECB “needs to continue our hiking cycle”.


Data in Europe this week will likely drive GBPEUR and EURUSD price action. With Q1 GDP expecting to sit at 1.2%, another hike from the ECB is all but priced in at June’s interest rate announcement. Further hawkish rhetoric from the ECB over the coming months should push the Euro higher.


What about the coming months? We see the Euro gaining ground on GBP and USD in H2 unless the Ukrainian war drastically escalates ahead of winter.


Calendar

Tuesday 09.00 GMT | Retail Sales

Thursday 09.00 GMT | GDP (Q1)




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