Sunny Start to the Month for Sterling
As the UK slowly returns to normality, the currency markets continued to worry last week about the impact of this on inflation and whether Central Banks will be too tardy in their response. The Royal Bank of New Zealand and the Bank of Canada signalled their intentions to raise rates in 2022, as Dr Gertjan Vlieghle, a Bank of England’s Monetary Policy Committee member, voiced his concerns. His comments helped sterling spike back towards $1.4200, the top of its recent range, even though his remarks were heavily caveated and the fact that when the time comes to tighten, he will no longer be at the Bank of England. However, with the markets shut for holiday’s yesterday, Friday became the de facto month-end and rebalancing unsettled the dollar, and it has continued to weaken this morning.
As customary for the first week of the month, the data docket is dominated by the unemployment reports released throughout the week culminating in the all-encompassing non-farm payroll employment report on Friday. Closer to home, we will be watching out for signs that the Indian variant is spreading from its present areas of concentration in what is another quiet week for data in the UK. The euro has opened at $1.2220 this morning, and it may be the centre of the action this week as the Eurozone release their inflation data ahead of the European Central Bank’s next meeting on 10th June with the central bank still prevaricating over their next steps.
UK
Last week, the pound put in a good performance against most of its peers, and this looks set to continue with its opening at €1.1640 this morning. It responded as we said earlier, to the comments from the Bank of England whilst ignoring the political fallout from Dominic Cumming’s testimony about the handling of Covid. With tube journeys jumping 25% to their highest levels since before the start of the last lockdown in the first week of November, London is gradually returning to work, and the comments from Andrew Bailey and his colleagues to the Treasury Select Committee of the House of Commons, on Thursday, will be followed closely for any signs of hawkishness as will his speech this evening. Apart from the testimonies, it is another quiet week for data in the UK apart from the final readings of the Purchasing Manager’s Indexes starting today with those from the Manufacturing sector and followed on Wednesday with Services.
Euro
As with all economies, markets are studying inflation and employment data for clues to recoveries and subsequent tightening of rates. This week, it’s the turn of the Eurozone to publish their reports, starting today with the release of its Core and Headline Inflation data for May. After yesterday’s Consumer Price Index releases across the continent, these may surprise the upside. We will also be keeping an eye on German Unemployment data released as this missive hits your mailbox. The response from European Central Bankers is limited as they enter into a week-long verbal blackout from Thursday before their next council meeting on 10th June. Also released this week, the European Markit Purchasing Managers Indexes start today with their Manufacturing and followed with the other sectors during the week. Tomorrow sees German Retail Sales for April reported as well as April’s Eurozone Producer Price Index. Also released is a report concerning the euro’s international role, which should show the growing use of the single currency on the international stage and may add a little strength to the single currency.
US
After the normal gyrations caused by month-end rebalancing, we get back to some sense of normality this week with some important data releases. After Personal Consumption Expenditure came in slightly higher than expected at 3.1% on Friday, there was some selling of US Bonds, exacerbated by the reports of President Biden unveiling a $6tln budget, leading to higher yields and making the dollar more attractive however month pressures somewhat muddied the reactions. It will be interesting to watch how the market trends this week ahead of the key non-farm payroll data released this coming Friday. The 266,000 jobs created in April disappointed the market the last time the figures were reported. This data set will be closely studied for anomalies as there seems to be demand for workers, with supply that is the problem. Before the Non-Farm data, ADP will release their private-sector employment report tomorrow, not always the most reliable indicator, and the weekly Jobless claims on Thursday. Apart from the unemployment data, the ISM business surveys are also out. A busy schedule of speakers from The Federal Reserve awaits us, starting today with Lael Brainard, followed tomorrow by Charles Evans and Raphael Bostic. On Thursday, Raphael Bostic returns to the podium joined by Randal Quarles, and we finish the week listening to the thoughts of Fed Chairman Jerome Powell.
Scandi
Sweden, like all other Nordic countries, had a normal working day yesterday. The Swedish krona was pretty much rangebound against the euro, and there were no major movements despite data showing that wages increased by 0.1% on a month-on-month basis. Today we will get the Swedbank PMI Manufacturing data and, later in the week, the Current Account Balance and the Budget Balance. Neither is expected to be a kiosk turner. Most traders and market participants expect the delayed krona bull run to make steam this month after May turned out to be one of the least volatile months ever with movements within a 10 öre range against the euro and pretty much a 5 öre range against Sterling. Most Swedish firms will break for their annual summer holiday (usually lasting a little bit more than a month) after Midsummer, which falls on 25th June this year.
The Norwegian krone weakened throughout May, and its impressive bull run has been somewhat halted despite rumours about a potential rate hike come September. This week we will get the DNB PMI Manufacturing data followed by the Current Account Balance figure on Wednesday. Unfortunately, neither are data releases that are ranked as critical.
Due to the fact that we are now entering the month of June, we would like to encourage our clients and partners trading with any of the Scandinavian or Nordic countries to start preparing for the month-long summer holiday starting after Midsummer, given the fact that supply chains will be disrupted, and certain factories and businesses will be completely shut. Should you wish to speak to one of our regional experts about how flows over the summer could be managed most effectively, please feel free to reach out to your dedicated Account Manager or reply to this email directly.
Support and Resistance
GBP/USD
Support 1.4123 Resistance 1.4284
EUR/USD
Support 1.2148 Resistance 1.2292
GBP/EUR
Support 1.1576 Resistance 1.1672
Email: richard.matthews@gcpartners.co
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