Pound slides amid mixed economic data
The pound (GBP) began last week in a muted manner, owing to a short supply of domestic data.
On Tuesday, Sterling was uneven in the wake of mixed labour data. While unemployment in April unexpectedly climbed to 4.3%, wage growth remained strong.
This was then followed by subdued trade for the pound, as the latest UK GDP figures showed that the economy stalled in April.
UK data then dried up in the second half of the week, resulting in the pound trading without a clear direction.
On Friday, however, a dismal market mood saw Sterling plummet. Due to a continued absence of data and its increasingly risk-sensitive nature, GBP fell against safer assets amid bearish trade.
The main event this week is likely to be the latest interest rate decision from the Bank of England (BoE). Owing to a communication blackout ahead of the UK election, the BoE is unlikely to offer much guidance. However, as inflation looks likely to cool to 2%, rate cut bets could weaken GBP.
US dollar climbs as Fed pares back rate cut projections
Last Monday, the US dollar (USD) consolidated its gains from the previous week’s strong jobs data. The release prompted investors to adjust their bets on interest rate cuts from the Federal Reserve.
The ‘greenback’ then continued to tick higher, as markets began to anticipate the Fed’s latest interest rate decision.
USD exchange rates then tumbled in mid-week trade as US inflation printed below expectations, with the headline rate unexpectedly easing from 3.4% to 3.3% in May.
The Fed’s latest interest rate decision allowed USD to claw back some losses, however. The central bank indicated it would only cut rates once this year, lending USD strength.
The ‘greenback’ continued to recover on Thursday, as risk averse trade yielded safe-haven flows for the currency. Furthermore, a surprise decline in US producer price inflation and shock rise in jobless claims failed to debase USD.
The sour mood permeated through Friday, allowing the US dollar to continue climbing. However, an unexpected decline in consumer morale in May likely capped USD’s gains.
Tomorrow, the latest US retail sales data is due to print. In May, economists forecast that sales will have increased by 0.2%, which could boost the ‘greenback’.
Euro slips as European political anxieties swell
The euro (EUR) tumbled at the start of last week, with the single currency dropping to a 22-month low against the pound amid political anxiety following the European elections.
EUR sentiment tumbled as far-right Eurosceptic parties made notable gains across the Eurozone, markets were particularly spooked after French President Emmanuel Macron’s called a snap election.
The euro managed to lick some of its wounds in midweek trade. As the US dollar weakened, EUR strengthened due to the pairing’s negative correlation.
A shock contraction in industrial production across the bloc revived the EUR selling bias on Thursday. Output fell by 0.1%, far beneath forecasts of a 0.2% increase.
Political angst returned to the forebear on Friday. EUR investors feared that Macon’s election gamble could backfire, leaving President would be unable to push through needed economic reforms if Marine Le Pen’s National Rally party manages to win a majority in parliament.
Ongoing political anxiety in France may continue to act as a headwind for the euro this week. However, Germany’s latest ZEW economic sentiment index could provide some respite on Tuesday as morale in the Eurozone’s largest economy is expected to have improved again this month.