Heading towards parity?

GBP

GBP/USD near two-year low

The Pound has had a muted start to the week against other G10 majors, trading just above a two-year low versus the US Dollar and 40 basis points softer against the Euro. Last week was a bleak one for economic data in the UK, as it was revealed in the latest GDP growth stat that the British public reduced its spending on non-essential items amid the ongoing cost-of-living crisis. With inflation expected to continue rising, the slowdown in spending will likely continue to worsen as households feel the squeeze on their finances. In the week ahead, Tuesday will see the release of labour data, but with the Unemployment Rate expected to maintain its previous 3.8% reading, the UK’s headline ecostat will be Wednesday’s highly anticipated release of the Inflation Rate figures. Currently, UK inflation is at 7%—its highest level in 20 years—with expectations set for a further jump to 9.1% year-on-year in April. This reading is the first to take into account the first energy cap rise that UK households experienced last month—a further rise is expected in October.

EUR

Heading towards parity?

The Pound to Euro exchange rate closed 1.07% last week higher after reaching its lowest level since October 2021. Meanwhile, the Euro to US Dollar exchange rate briefly break below the 1.04 level for the first time since January 2017, heading closer toward parity. Last week also saw the Euro experiencing some movement due to rising gas prices after Russia imposed sanctions on EU energy suppliers. Russia has said it will cut shipments to Europe as Vladimir Putin uses energy access as a weapon. ZEW Economic confidence for the Eurozone printed at -29.5 following a poorer previous reading of -43, indicating a continued—although less extreme—pessimistic outlook for the economy in the EU. President of the European Central Bank Christine Lagarde commented that she expects inflation to remain high for some time during a speech This morning, European Commission growth forecasts were downgraded for this year from 4% in February to 2.7%, while 2023 is only expected to show 2.3% growth, with the Russian invasion of Ukraine cited as the main reason for the slowdown. This week will see some key inflation data come onto the market alongside GDP growth stats for the first quarter of 2022 as markets anticipate the ECB’s next interest rate decision in the upcoming July meeting. The ECB's Lagarde is expected to use her speech this week to solidify the bank’s positioning on a softer Euro and could potentially offer the Euro some support.

USD

Two-decade highs!

The Pound to US Dollar exchange rate closed 0.69% softer last week and extended its losses to reach its lowest level since May 2020. Against the Japanese Yen, the US Dollar traded at new highs last week—rocketing to its highest levels since April 2002, marking two-decade highs! Against a basket of other major currencies, the US Dollar has marked six straight weeks of gains. Some Federal Reserve members have backed 50 basis-point hikes in June and July and have made comments that suggest that aggressive monetary tightening could continue for some time. Inflation dipped slightly in April from March’s 8.5% to 8.3%, ignoring forecasts to fall further to 8.1%. Although inflation rates slowed, it remains at a 40-year high. Federal Reserve Chairman, Jerome Powell, has warned that taming inflation will cause ‘some pain’. There are quite a few moderately influential US data points out in the week ahead, with Retail Sales being the headline event on Tuesday.

AUD and NZD

Aussie hits 23-month lows

The Pound to Aussie Dollar exchange rate finished 1.31% higher last week, while the Sterling to Kiwi Dollar currency pair ended the week 1.90% higher—closing above the 200-daily moving average. Data out last week showed that consumer confidence has fallen in Australia as households deal with the rising cost of living pressures and the prospect of rising interest rates. Building Permits, which indicate future building activity, declined by 18.5% in March following a 42% increase in the previous month. Risk sentiment has ebbed recently, and the Aussie reached 23-month lows against the US Dollar last week. Any comments from the Reserve Bank of Australia on the future of monetary policy could impact the Aussie in the coming months. This week, the RBA meeting minutes will be out as well as highly influential labour market data.
 
New Zealand’s April manufacturing reading noted a decline when it printed last week. However, card spending saw a 7% increase, despite a 1.3% decline previously in March. However, with inflation increasing around the world, New Zealand consumers will likely begin to cut back as the global cost-of-living crisis continues to put pressure on households. This week will see the release of New Zealand’s annual budget, which outlines government spending and borrowing, and could influence markets.

CAD

Pound continues to soften against the Loonie

The Pound to Canadian Dollar exchange rate closed 0.72% softer last week, marking its fourth consecutive week lower. Last week was a quiet one for ecostats in Canada. The only data released showed an unexpected drop in the value of Building Permits—a figure that can be used to indicate future construction in the country. However, in the week ahead, Canada will see some high-impact inflation figures released amid the global cost-of-living crisis. Policymakers at central banks around the world are keeping a close eye on inflation and growth numbers to help them decide on the future of monetary policy. Alongside some further construction indicators, manufacturing data will also be released, which could add more colour to Canada’s future economic health.