Weekly Round-Up & The Week Ahead

Weekly round-up and a look at the week ahead for EUR, GBP, and USD.

GBP

Last week illustrated the UK economy is beginning to show shoots of springing back into life, the initial boost came on Thursday as the BoE voted to leave interest rates unchanged at 5.25%. The decision itself came as no surprise, the voting and the press conference that followed did catch the markets eye. Seven members of the MPC voted to keep rates unchanged, however two members voted to cut interest rates, alas the doves begin to resurface. Moreover, Governor Andrew Bailey shared the central bank have been encouraged by the recent inflation data and markets may see interest rate cuts come faster than anticipated. Friday’s GDP data then offered another window of hope as the economy grew at its fastest level since 2021, lifting the UK out of the technical recession we entered in the second half of last year.

After a period of underwhelming activity, last week may have shifted the mood for the outlook of the UK somewhat. Sterling didn’t overreact following the headlines, a modest bounce against the greenback and the now customary spike/retrace against the Euro. Tomorrows release of Average Earnings, ILO Unemployment, Claimant Count data will give further indication of how strong the bounce back really is.

USD

After Jay Powell issued that the Fed would not necessarily cut interest rates in line with market expectation and inflationary pressures were still higher than the Fed would like, it left traders battling to call on when the Fed will make its move. A lack of data last week saw a tight trading range for the US dollar spot index, as the Michigan Consumer Sentiment Index was the only release of note. However, the days to follow could more than make up for last week’s sideways trading…

Kicking off with April's Producer Price Index tomorrow, Jay Powell closes Tuesday out before the main event - Consumer Price Index. Given the Fed’s recent rhetoric the CPI reading will be more than closely watched by markets and any major deviation from the 0.3% forecast, has the potential cause a ripple in the greenback. Retail Sales and Retail Sales Control Group will be released alongside CPI for April.

EUR

The big question surrounding the Eurozone at the moment is firstly, are they prepared to deviate from the Federal Reserve with regards to monetary policy? Secondly, can the economy ever be as productive as the US? Both questions are weighing heavy on the EU leaders and the ECB, unsurprisingly both questions can only be answered over the ensuing year. Economic performance is a concern for the bloc as GDP has risen 3.4 percent since the pandemic versus the US performance of 8.7 percent. Macroeconomics will again be a key insight for EU leaders over the next steps.

Markets will be treated to more GDP figures this week, Eurozone GDP data for Q1 released on Wednesday but German CPI data for April will be first to hit our screen tomorrow morning, followed by the ZEW survey. The week is closed out with Eurozone CPI figures for April – no change forecast and likely to remain at 0.6% MoM.

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