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Last week’s big event fell late on Friday with a stonking result for Non-Farm Payrolls in the USA, far ahead of expectations and strongly supporting a call for interest rate rises from the Fed this year. Higher rates normally help a currency, but if traders think hikes will squeeze growth, the “good news” can land with a thud. The inflation reading on Wednesday may settle the matter, so it could be a turbulent week. This might be good for the dollar but it’s bad for business and US stocks, especially AI/tech stocks, fell last week.
Helping business, the oil price remains well below $100. Over the weekend Iran restarted firing missiles at Israel, yet in theory the USA-Iran ceasefire is still in play. Part of America’s jobs burst is down to hospitality companies staffing up for the World Cup, which starts this week. With the Iran team being welcomed by the USA to play in California for two weeks, could ‘football diplomacy’ have any impact? President Trump did, after all, win the FIFA Peace Prize.
For sterling we continue in a quiet period for data, but there are reports on our current shopping mood. Two reports out last week showed shoppers returning to the high street – prompted by the warmer weather – and we’ll hear more on that from the BRC Retail Sales Monitor tomorrow morning.
However, for sterling the economic data point of the week will be Gross Domestic Product (GDP) on Friday, which analysts predict will have fallen by 0.1% in April. On which point, in business news, government minister Peter Kyle said at the weekend that the government would be taking a “aggressive” stake in fast-growing British companies in an effort to jump-start economic growth and reverse the brain drain of great British startups moving overseas.
GBP: Sterling looks for recovery against USD
After a relatively positive week for sterling, GBP/EUR remains near the top of the range it’s been for the past year, although Friday’s sharp drop against the US dollar has sent GBP/USD to its lowest for two months. Coming up this week, the aforementioned GDP at the end of the week, but it looks likely to be the Iran conflict back in the driving seat, with the ECB rate decision also influential.GBP/USD: the past year
EUR: ECB rate rise priced in?
Much like sterling, a positive week for the single currency belly flopped on Friday as the missiles started in the Persian Gulf once again. The big event for the euro is the interest rate decision on Thursday, likely to be the first rise since September 2023. A reminder that currency markets like interest rate rises – up to a point – so a signal that more are on the way could benefit it. More importantly, will they signal further rate rises or give the appearance that one will be enough?GBP/EUR: the past year
USD: Dollar boosted by labour strength
Risk benefit is back on the table for the US dollar, as the missiles started flying again over the weekend. However, it was Friday’s jobs report that really boosted USD, as the US economy continues in rude health. Coming up this week the big event is inflation on Wednesday, but also on the table is US Federal Reserve independence under its new chair. The markets expect rate rises this year – but Trump wants cuts. So traders will be watching how the Fed communicates in the run-up to its June meeting, and whether US inflation data keeps policymakers pinned in place.USD/GBP: the past year
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