Pound mixed ahead of UK general election
The pound initially ticked higher at the start of last week on the back of a better-than-forecast industrial trends survey from the Confederation of British Industry (CBI).
Pared-back Bank of England (BoE) interest rate cut bets then lent Sterling some additional support on Tuesday, as signs of sticky global inflationary pressures quelled market speculation of imminent monetary unwinding.
However, a sharp decline in the CBI’s latest distributive trades survey subsequently reinforced concerns of a sluggish retail recovery in the UK, hampering GBP exchange rates in mid-week trade.
Sterling extended its losses on Thursday following the BoE’s Financial Stability Report, which warned that the flurry of upcoming global elections could fracture the UK’s financial system.
As the week drew to a close, the UK’s finalised GDP print failed to lift Sterling, despite reporting better-than-forecast 0.7% growth throughout the start of 2024.
Looking ahead, British election speculation may limit GBP movement ahead of the vote on Thursday, before the results potentially trigger some volatility on Friday.
US Dollar volatile amid fluctuating Fed rate cut bets
A data-light start to the week saw the US dollar slip against some of its rivals last Monday, as the currency was left vulnerable to some profit-taking following its rally the prior Friday.
Tuesday saw hawkish rhetoric from Federal Reserve policymaker Michelle Bowman boost the ‘greenback’, amid assertions that the central bank remains open to further interest rate hikes.
Heading into the latter-half of the week, USD retreated as the latest US durable goods orders release pointed to slowing demand in the industrial sector. Additionally, US jobless claims held near a ten-month high the previous week, indicating a sluggish labour market.
On Friday, the core PCE price index, the Federal Reserve’s preferred gauge of inflation, eased to 2.6% as expected. Confirmation of cooling US inflation left the ‘greenback’ struggling to catch bids, amid shifting Fed rate cut bets.
Going forward, an influx of high-impact releases may see USD encounter some volatile trading conditions. The main focus for USD investors, will likely be the hotly anticipated US non farm payrolls, due for release on Friday. With the number of jobs added by the US economy forecast to have sharply declined in May, signs of a weakened US labour market may suggest that Fed rate cuts are closer than previously anticipated, thereby denting the ‘greenback’.
Euro (EUR) wavers amid political uncertainty
The euro faced headwinds last Monday following a surprise downturn in Germany’s latest Ifo business climate survey. Deteriorating sentiment highlighted Germany’s potentially long and bumpy road to economic recovery.
On Wednesday, an unexpected decline in the German GfK consumer confidence survey reinforced anxieties about the health of the Eurozone’s largest economy.
Further economic pessimism cast a shadow over EUR exchange rates on Thursday, as the Eurozone’s latest economic sentiment indicator unexpectedly fell in June.
In addition to this, dovish remarks from European Central Bank (ECB) policymaker Olli Rehn further soured EUR sentiment, as the policymaker suggested that the central bank could cut rates a further two times this year.
However, the common currency’s downside was seemingly cushioned by an uptick in consumer inflation expectations.
On Friday, German unemployment rose to its highest level since May 2021. Coupled with anxieties about France’s looming election, investors appeared reluctant to place any aggressive bets on the common currency.
Looking ahead, the Eurozone’s latest inflation data is due for release. Could easing price pressures underpin the ECB’s dovish stance, stymieing the euro?