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Dollar surges again as Federal Reserve confirms consensus

Today’s macro highlights:

  • GBP - Retail Sales (April)
  • EUR - Monetary policy meeting account

Dollar surges again as Federal Reserve confirms consensus

With disappointing data releases from both the UK and the Eurozone during yesterday’s session, the dollar once again had the upper hand. UK inflation came in just a shade lower than had been forecast although opinions are divided as to whether this will knock the prospect of a BoE rate hike in August. Rising oil prices will maintain inflationary pressures and cable’s recovery from yesterday’s lows suggests the market still has some belief here. Eurozone PMI readings proved even more disappointing and with the FOMC meeting minutes underlining members’ resolve to keep tightening interest rates it was perhaps no surprise that the dollar ended the day ahead.

There have been a number of data releases from Germany this morning which saw the Euro wobble briefly. Exports for the first quarter fell by 1% which seems to have spooked the market, but the in-line revised Q1 GDP figures served to reverse those losses. A case of nothing to see, here.

With the market divided over the heath of the UK economy, today’s retail sales figures at 9.30am BST will be closely followed. The year on year figure is expected to drop from 1.1% to 0.4% and a print in negative territory would have the potential to push Sterling lower once again. We also have comments due from Mark Carney today, although after Tuesday’s parliamentary hearing, it seems unlikely that anything new will be brought to the table in terms of the outlook for interest rates.

12.30pm BST sees the release of the ECB’s monetary policy meeting accounts. These have the potential to shed more light on the bank’s thinking over the resilience of the Eurozone economies. The bond buying scheme needs to be unwound before there can be any discussion of hiking interest rates, but a run of downbeat datapoints from the currency bloc in recent months is leading many to question whether the economy is ready. Anything that suggests the bond buying will need to be extended is likely to be negative for the common currency.

Cable hit fresh lows for the year yesterday, coming close to breaking below 1.33. However, the steady run of gains during the afternoon session suggests that the door may still be open for a rate hike in August. The trend has the potential to remain firmly downward until we have more certainty over that next rate hike. 

The pair lost around three quarters of a cent in yesterday’s session as it continues to edge back towards the November lows around 1.16. With the diverging interest rate policies between Washington and Frankfurt, again there’s plenty to support this trend lower. 

The pair spiked higher off the back of disappointing Eurozone PMI prints, but support was short lived with the miss in UK inflation reversing gains. As noted however there are many who feel the shortfall in UK inflation wasn’t serious enough to shut the door on a rate hike in August - a break above the month’s highs towards 1.15 could still be seen.