Weekly Round-Up & The Week Ahead

Weekly round-up and a look at the week ahead for EUR, GBP, and USD.

USD

The dollar fell under the spotlight again last week as markets looked to gauge the mood of the Federal Reserve during their monthly two-day meeting. Both EUR/USD and GBP/USD had been forced to multi-month lows during April, with many speculating that the Fed may need to act further to squash inflation. Chair Powell seemingly put an end to those rumours, commenting that another hike would be unlikely, while striking an overall dovish tone. US data released on Friday also hinted at a slowdown in the labour market, with Non-Farm Payrolls missing estimates, Unemployment ticking up and Average Earnings dropping down. While the Fed can afford to remain ambiguous on their timetable for the first rate cut, weak data or any hint that the economy is stumbling will almost certainly have traders moving expectations forward.

Minimal data from the US this week will see Fed speeches in focus, although it may be hard for the dollar to break recent monthly ranges.

EUR

The euro has held steady of late, with improving economic data providing a more solid base from which to work. Inflation seems to be moving in the right direction and major nations are now posting reasonable growth figures, an area they had struggled with for much of 2023. HICP and GDP data from last week will have pleased the ECB and looks likely to keep the European Central Bank on course for a June rate reduction. HCOB PMI figures released yesterday also remained above the all-important expansion level, keeping the euro supported as we begin the new week.

Retail Sales data today pretty much rounds off the top tier data points in Europe for this week, so expect euro-based markets to settle for the remainder of the week and the euro to be affected by events outside of its control.

GBP

For the pound, much of the last few weeks has been spent gliding below the radar, a place it seems to enjoy, as GBP often manages to gain when it is out of focus. This week will change that rhetoric, with the Bank of England meeting on Thursday and GDP figures being released on Friday. No changes are expected from the BoE this month, but markets remain split on whether June or August (there is no meeting in July) will see the initial rate cut. Recent data suggests that the UK may win the race to return inflation to its 2% target, therefore completely reversing market predictions from earlier this year on G3 central bank action.

Expect volatility in the pound as we head towards Thursday’s meeting. Should the BoE hint at a June reduction, sterling may find itself under some pressure.

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