GBP

‘Apocalyptic’ prices

Last week, Bank of England Governor, Andrew Bailey, warned of a ‘very big income shock’ to households and expressed feeling ‘helpless’ in the face of rising inflation. On Wednesday, the UK Inflation Rate rose to 9% in April and is now expected to extend its 40-year high to peak at 10%. The BoE Governor blamed Russia’s invasion of Ukraine for Britain’s soaring inflation levels, noting that ‘apocalyptic’ food prices were a result of the conflict and could have a devastating impact on the world’s poor population. Meanwhile, Friday’s UK Retail Sales release for April exceeded expectations to rise by 1.4%, despite increasing living costs for households. The increase has been attributed to supermarket alcohol sales, showing that people are opting to stay in rather than go out while prices keep inflating. The reading beat the forecasted 0.3% rise and follows a 1.2% fall in March. The monthly rise helped to reverse recent losses, but the annual figure still remains in contraction territory at -4.9%. Other than the release of manufacturing and services data, there’s not a lot of potentially market-moving data out in the UK this week, leaving Sterling vulnerable to geopolitical developments and other events.

EUR

Expectations grow

The Pound to Euro exchange rate closed just 0.08% higher last week after trading within a range of almost 2 cents against the Euro. Last week also saw the European Commission release its first set of forecasts since the Russian war in Ukraine began. The EC revised its economic projections for 2022, bringing the expected growth rate in the Euro Area lower and the forecast peak inflation rate higher. With analysts predicting further lows for the Euro, expectations have also surfaced for the common currency to reach parity with the US Dollar, which hasn’t happened for two decades. In the week ahead, European Central Bank President Christine Lagarde is expected to make two speeches, after raising market hopes this morning of an interest rate hike in both the ECB’s July and September meetings. Meanwhile, Eurogroup and Ecofin meetings will also take place this week, and data will consist of manufacturing and services stats.

USD

Influential data ahead

The Sterling to US Dollar exchange rate closed 1.55% higher last week, after four consecutive weeks of losses. May has seen some historic performances for the safe-haven US Dollar amid global concerns around the Russia-Ukraine conflict and the rising cost of living. Last week saw US retail sales growth in April rise in line with expectations—alongside a positively revised March reading—with US households showing resilience toward surging prices and rising inflation. Last Tuesday, the Federal Reserve’s President, Jerome Powell, reiterated that inflation levels need to come down, indicating that policymakers will continue with aggressive monetary tightening. There are quite a few highly influential data releases in the US next week and Fed Chair Powell is also due to speak. The Federal Open Market Committee’s (FOMC) meeting minutes will also be published, alongside Durable Goods Orders numbers which detail manufacturing activity, GDP growth data, inflation figures, and consumer sentiment survey results.

AUD and NZD

Change in leadership

The Pound to Australian Dollar exchange rate closed 0.22% lower last week, after failing to break above the 1.80 figure. The same week saw the release of the latest Reserve Bank of Australia’s Monetary Policy meeting minutes. They highlighted the need for more aggressive policy tightening, showing that the RBA considered a 40-basis-point hike in its May gathering, a revelation that provided support to the Aussie Dollar. It’s now expected that the RBA will raise the interest rate to 0.75% in June. The Australian Unemployment Rate showed no change in April. Meanwhile, on Saturday the nation elected Anthony Albanese as its new Prime Minister to head the first Labor government in almost a decade. The Dollar has gained following the result, as it looks likely that a majority government will be formed, as previous fears of political uncertainty caused by a hung parliament were quelled. The new government will inherit a slowing economy with high inflation and a strong labour market, and the potential for rate hikes by the RBA in the near term. This week will see some medium-impact Australian data hit the market, including manufacturing, services, and retail sales figures.

The Pound to NZ Dollar exchange rate closed the week just 0.1% lower than it started. This puts the currency pair back below the 200-daily moving average after it closed above this level the previous week. In New Zealand, last week’s annual budget release revealed that the country is forecast to avoid a recession narrowly. The Treasury now expects 0.1% of growth in the second, third, and fourth quarters of this year. A quiet spell for economic data in New Zealand will be interrupted by the Reserve Bank of New Zealand’s cash rate decision and press conference in Wednesday’s Oceanic trading session. The market will be watching closely for clues about future monetary policy decisions, which could cause some movement for the Kiwi.

CAD

Inflation continues to soar

The Sterling to Canadian Dollar exchange rate closed 1.42% higher and above the 1.60 figure after four consecutive weeks of losses last week. Meanwhile, Canadian inflation data was released, with the headline February Inflation Rate reading coming in at 6.8% on the year, beating expectations by 0.1%. With Russia’s invasion of Ukraine continuing to push up energy, commodity, and food prices and wages failing to keep up the pace, Canadian households are likely to continue to feel the pinch. Today the Canadian market is closed to mark Victoria Day. Otherwise, it’s set to be quiet on the data front in the week ahead, with only the latest earnings data and retail sales figures due out. This could leave the Loonie responsive to movements in oil prices or global geopolitical developments.