Housing market pressures highlighted

GBP

UK economy shrinks unexpectedly

Sterling struggled against the US Dollar last week, and it could be hard for the Pound to strengthen in coming sessions as economic data undermines the British currency. According to a survey released last week, the British housing market slowed down in May as high inflation continues to put the public's buying power under pressure. Chief Economist at the Royal Institution of Chartered Surveyors (RICS) said: 'The increase in the cost of mortgage finance alongside growing concerns about the economic outlook is unsurprisingly having an impact, albeit a relatively modest one at this point'. Last Tuesday brought a -1.5% reading for the British Retail Consortium's Retail Sales Monitor in May, totalling three months of consecutive negative prints.

Meanwhile, this week will feature some high-tier British data releases and events. GDP growth figures released earlier today printed worse-than-expected readings and showed that the UK economy unexpectedly shrank in April. Tomorrow, UK Employment figures will be released, and market interest will peak on Thursday when the Bank of England's Monetary Policy Committee will make its interest rate announcement. Policymakers are expected to increase the Official Bank Rate from 1.00% to 1.25%.

EUR

Rate hikes confirmed

The Euro has fallen almost 2.50% against the US Dollar in the last week. This comes as the European Central Bank revealed its plans to raise interest rates in July for the first time in eleven years. According to the ECB, next month's meeting will increase the rate by 0.25%, with another rise planned for September. The governing council also noted that quantitative easing will end next month. Elevated inflation in the Eurozone was attributed to surging energy and food costs. At the same time, the central bank commented that it expects the growth of the EU economy to continue despite Russia's war in Ukraine. ECB President Christine Lagarde will speak this Wednesday, and Eurogroup and ECOFIN meetings are scheduled for Thursday and Friday, respectively. This week's economic data calendar for the Eurozone includes Tuesday's ZEW Economic Sentiment reading—which is expected to recover from May's -29.5 to -24.5 in June—alongside trade and production figures.

USD

Recession fears reignited

The Pound to US Dollar exchange rate is closing in on its year-to-date low of $1.2156, trading just above the $1.22 handle this morning as growth concerns weigh on Sterling. Last week's US economic data releases painted a bleak picture, with higher-than-expected readings for inflation and Initial Jobless Claims, coupled with Consumer Sentiment dropping to an all-time low in June. This has triggered the resurfacing of recession fears, and all eyes will be on Federal Reserve officials this week as markets look to assess the future of monetary policy. Wednesday in the US will see the Fed announce its latest interest rate decision, with an increase of at least 50 basis points expected to follow the previous two hikes this year. A press conference will follow the announcement, and Fed Chairman Jerome Powell will also speak on Friday in Washington DC. Beyond central bank news, there'll be influential Retail Sales and Producer Price Index data released in the first half of the week.

AUD and NZD

RBA surprises market

The Pound has gained over 1% against the Aussie Dollar since Monday last week, falling to lows of 1.7296 following an unexpected 50-basis-point interest rate hike by the Reserve Bank of Australia. The pair shook off this news to reach highs of 1.762. Last week was a quiet one for economic data in Australia. However, the week ahead promises to provide more, with stats for housing, consumer sentiment, business confidence and inflation expectations due out. Due to its link to consumer spending, the Unemployment Rate in Australia will be the headline release.

The Sterling to New Zealand Dollar exchange rate has gained just under 0.9% since the beginning of last week, with a low of 1.9128 and a high of 1.960. Last week saw little market-moving data out in New Zealand, but the ANZ Commodity Price Index did print to show a further 2.8% drop in May, driven by weaknesses in aluminium, dairy, and forestry. However, dairy prices, New Zealand's most lucrative commodity, rose 1.5% in June compared to last month's -2.9% reading. Meanwhile, manufacturing sales fell in the first quarter of the year. This week, New Zealand will see food prices out alongside trade and manufacturing figures. The mid-week release of GDP growth data will be the main event in the country's economic calendar as markets eye global growth.

CAD

Housing market pressures highlighted

The Pound to Candian Dollar exchange rate is down 0.35% on the week. Despite seeing highs of 1.5884 last week, the pair is trading near the 1.5668 lows of the last seven days again today. The Loonie is the best-performing G10 currency this year so far, as a hawkish central bank and a sustained rally in oil prices have helped underpin its strength. Last week's Balance of Trade figures showed that growth in Canadian trade slowed in April. Meanwhile, the Ivey Purchasing Managers' Index printed higher than expectations. Thursday saw the release of the Bank of Canada's Financial System Review, which noted that central banks worldwide have shifted from focusing on pandemic support to managing rocketing inflation. The report highlighted vulnerabilities in the Canadian housing market and recognised that the Russia-Ukraine war has created global uncertainty and increased volatility in commodity markets. Positive employment data closed the week as employment rose and the Unemployment Rate shuffled down in May. There's little high-tier data due out in Canada this week, meaning the Loonie could become sensitive to lower-tier manufacturing, housing, and industrial costs figures that will trickle in throughout.