GB Pound
What happened last week?
↑ The pound weakened despite the Bank of England hiking rates at its May meeting, while also upgrading growth expectations.
What to watch for in the short-term?
↓The Bank of England meeting went largely as we expected and drew focus for its next move on rates on to a few data points, one of which is released tomorrow.
Wage numbers are volatile and have been so throughout the recovery from Covid. With 20bps of hikes priced in for the June meeting – essentially an 80% chance of a hike in a month’s time – a poor pay figure represents a real risk to recent sterling strength.
Whilst one data point is never enough to hang a monetary policy change off, should market participants see wage pressures declining then they will be more comfortable with a Monetary Policy Committee that has come to the end of its hiking cycle.
What about the coming months? ↓ With central banks now diverging having all toed a path of higher rates, we will start to see trends in G10 pairs breakdown. For us this could look like a stronger pound against the USD but struggles against the euro.
Calendar
Tuesday 07.00 BST | UK Average Earnings
Tuesday 07.00 BST | UK Unemployment Rate
US Dollar
What happened last week?
↓ The USD was volatile, as it priced in additional risks around ongoing political arguments
What to watch for in the short-term?
↓ The decision on the US debt ceiling is set to come to a head in the coming weeks with negotiations between Congress and the White House to reopen on Tuesday. The balance of probabilities has this becoming more of an issue for markets as time goes on with investors buying both the USD, and more so the JPY, as a haven from risk.
This is a competing factor with the decline in short term rates Stateside that has continued as further rate cuts have been priced in from the Fed through the coming 12 months.
What about the coming months? ↑ A resumption of normality – a signed debt ceiling agreement – should open the gates for a dollar depreciation in H2.
Calendar
Thursday 13.30 BST | US Initial Jobless Claims
Euro
What happened last week?
↑ An ECB meeting that suggested further hikes may have been enough to see 1.10 become a level of support for the euro, in its bid for additional gains.
What to watch for in the short-term?
↑ EUR is likely to trade as a function of EURUSD and therefore the USD in the short-term as focus hones in on Washington DC and the chances of some form of showdown or shutdown are seeing investors want to hold the USD as a haven from ripple effects in other markets.
Closer to home this should mean that EURUSD will struggle to make new highs whilst focus is elsewhere.
What about the coming months? ↑ The summer doldrums will see investors to look ever closer at European data for hints of policy manoeuvres by the European Central Bank.
Calendar
Friday 07.00 BST | German PPI
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