Sterling
The Pound maintained its recent strength versus the majors over the Bank Holiday weekend.
An examination of the UK economic calendar shows that there are only three major items due for release this week: the manufacturing, construction and service sector PMI results. Although manufacturing is tipped to remain in contraction, the composite private sector index is forecast to rise mildly from 51.9 to 52.3 and subsequently Sterling should be able to avoid any severe losses on the currency markets.
Euro
The Pound to Euro exchange rate rallied by around a third of a cent over the long weekend despite German inflation data showing that consumer prices rebounded in May.
German inflation contracted -0.1% in April but rebounded to +0.1% in May, according to data released yesterday. The uptick in price pressures in the currency bloc’s largest economy suggests that this morning’s Eurozone CPI print could also increase. However, analysts’ forecasts point to an unimpressive improvement from -0.2% to -0.1%, which explains why the single currency was unable to garner momentum following the German rebound.
A separate report is anticipated to show that unemployment in the Eurozone remained at a tall 10.2% during April, which is unlikely to hurt the Euro but is certainly not going to give the single currency much of a boost.
US Dollar
‘Cable’ depreciated by around half a cent at the end of last week’s session as markets reacted to optimistic comments from Federal Reserve Chairwoman Janet Yellen.
Hot on the heels of data showing that the US economy expanded more than initially estimated in the first quarter – albeit at a sluggish annualised rate of 0.8% instead of a previously reported 0.5% – Yellen noted that it was ‘appropriate’ for the US central bank to increase its benchmark interest rate over time.
The Fed President said that economic growth was picking up but cautioned that premature rate hikes could lead to downturns later down the line. Yellen’s remarks helped lift the US Dollar but most analysts are still sceptical regarding the possibility of a Fed rate hike ahead of June 23’s ‘Brexit’ referendum.
Canadian Dollar
Sterling strengthened by around half a cent yesterday ahead of data this afternoon that is expected to show that Canadian growth stumbled again in March.
Annualised Canadian growth is expected to have slowed from 1.5% to 1.4% in March, while the monthly GDP indicator is tipped to have remained in the red at -0.1%. Recent remarks from the Bank of Canada suggest that a rate cut is not currently on the cards. But if domestic growth continues to slow in the aftermath of the Alberta wildfires the potential for looser policy and a weaker ‘Loonie’ would likely rise.
Australian Dollar
The Australian Dollar weakened slightly against the Pound over the Bank Holiday weekend in response to Janet Yellen’s vaguely hawkish comments on the potential for US interest rates to rise over time.
The remarks hurt demand for the risk-sensitive ‘Aussie’ because tighter monetary policy in the world’s largest economy would lift borrowing costs worldwide, which would in turn make investments in more volatile asset classes (such as the ‘Aussie’) more risky.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate rallied by just over half a cent over the Bank Holiday weekend as risk aversion trends kicked in and weakened the appeal of the high-beta ‘Kiwi’.
Data Released
10:00 EUR Euro-Zone Unemployment Rate (APR) Medium 10.2%
10:00 EUR Euro-Zone Consumer Price Index Estimate (YoY) (MAY) High -0.1%
13:30 CAD Gross Domestic Product (MoM) (MAR) (MAR) Medium -0.1%
13:30 CAD Gross Domestic Product (YoY) (MAR) (MAR) High 1.4%
15:00 USD Consumer Confidence (MAY) High 96.3