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A big boost

View from the Trading Desk:

While we’ve spent a lot of time recently writing about rampant inflation in developed economies and the headache it's caused for central bankers, it’s been against a geopolitical backdrop of war in Europe and more Coronavirus lockdowns in China. Of course, it’s easier to argue the case for stagflationary risks when both issues could have wide-ranging consequences for global supply chains. Over the weekend, the news that China had reported the fewest Covid-19 cases in nearly three months, while simultaneously reducing curbs on movement, has caused a collective sigh of relief. Markets jumped into risk-on mode overnight and this morning, with European equities rising to their highest level in more than three weeks. The US Dollar lost ground against a basket of its peers, while other safe-haven assets lost their appeal.

However, we’re not convinced of the longer-term US Dollar weakness argument, particularly against the Pound. Political turmoil for ruling Conservatives and the cost-of-living crisis are both unlikely to be resolved in the near term. The UK’s latest aid package should provide a small boost to the economy, perhaps reducing the risk of recession. Still, it probably won’t be enough to avoid a Q2 GDP contraction. Meanwhile, Friday’s US data pointed toward consumer resilience—with inflation-adjusted spending rising 0.7% for April—despite the highest inflation in 40 years.

Bottom line: With today a US holiday and the UK off on Thursday and Friday for the Queen’s Jubilee, we’re expecting price action to be fairly choppy in what could be lower liquidity conditions. It could be a good time to target orders, especially later in the week with Friday’s US Non-Farm Payrolls data due out.

The week ahead


Sterling has drifted lower against most of its G10 peers over the last week, gaining just over 1.0% against the US Dollar and 0.5% against the Yen. Cable has been supported mainly by a US Dollar pullback over the last two weeks. Meanwhile, a GBP/EUR slip from its March highs could be accentuated heading into Eurozone Consumer Price Index prints this week, as the European Central Bank's hawkish rhetoric steps up. The windfall tax proposed by UK Chancellor Rishi Sunak, which could last until 2025, has been met with criticism by energy firms suggesting that investment in the procurement of supplies could be hampered, which could detract from the pursuit of renewable energy sources.

  • The British Retail Consortium Shop Price Index y/y is due on Wednesday, with the previous reading coming in at 2.7%.
  • Nationwide House Price Index m/m for May is forecast at 0.6% versus 0.3% in April.
  • On Wednesday, the UK final Manufacturing Purchasing Managers' Index for May is expected to remain unchanged at 54.6.
  • UK markets will be closed on Thursday and Friday for the Queen's Platinum Jubilee.



Over the last month, the Euro has staged a 2.30% recovery from its multi-year lows against the US Dollar, with talks of parity now somewhat a memory as the pair trades comfortably above $1.07. Two 25 basis-point interest rate hikes by the European Central Bank look set for the July and September meetings, which has pushed German Sovereign bond yields higher compared to the US over the last few weeks, supporting the common currency. Unity in the EU on sanctions against Russia is at a sticking point; further talks of an oil embargo are creating concern around the pressure this could put on the European economy. EU diplomats are expected to meet today.

  • Eurozone preliminary Consumer Price Index and Core CPI y/y for May are forecast to reach 7.7% and 3.5%, respectively, which would be the highest headline rate since 1999.
  • The Eurozone Unemployment Rate is projected to fall 10 basis points in April to 6.7%.
  • European Central Bank President Christine Lagarde will be speaking on a panel for central banks and the green transition this Wednesday.
  • Spanish Unemployment Change for May will be released on Thursday, those registered as unemployed fell by 86.3K in April.



Over the last few weeks, the decline in the US Dollar has been coupled with a rally in the equity market. Softening economic data is pushing up bets that the Federal Reserve will slow its pace of monetary policy tightening as the threat of an economic slowdown looms. Speculators have reduced their long positions in the US Dollar by around $2bn as of the 24th of May, according to the Commitment of Traders report. The S&P 500 gained 6% last week, ending its seven-week losing streak, which has put the index down over 13% year to date. More jobs are expected to be added to the US labour market this week, while a number of Federal Open Market Committee members will also be speaking.  

  • The ISM Manufacturing PMI for May is expected at 54.9 versus 55.4 in April.
  • US JOLTS Job Openings are forecast to read 11.40m in April, and will be released on Wednesday.
  • ADP Non-Farm Employment Change for May is projected at 295K, while Non-Farm Payrolls are predicted to read 325K in the same month.
  • Analysts expect the Unemployment Rate in the US to fall 10 basis points in May to 3.5%.  


If you'd like to discuss your foreign exchange requirements with one of our currency specialists, call us on +44 (0)20 3465 8200.