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The Bank of England looms large after sterling fell to end last week.
Sterling begins this shortened week under a little bit of downward pressure, with Thursday’s (8 May) meeting of the Bank of England’s Monetary Policy Committee likely to result in a cut to interest rates.
A mixed week for the pound saw it batted back from 1% gains against the US dollar and euro to finish largely unchanged against those rivals. The US dollar meanwhile was supported by a more cooperative approach to trade from the federal government and solid labour data (more on that below).
Back before the long weekend, we learned that inflation in the eurozone came in at 2.2% in April’s preliminary read. That was slightly above what had been expected, although there didn’t seem to be much of a reaction, a reflection perhaps of just how close it has moved to the European Central Bank’s (ECB) 2% target.
Strong labour data out of America was another help to the US dollar. Unemployment held firm at 4.2% and the economy added 177k jobs last month – below March’s number but well above market expectations. All this helped stock indices like the S&P 500 finally recover their losses following Liberation Day.
If you’re thinking the rally has further to run, it might be worth dwelling on the fact that Amazon CEO Jeff Bezos will be cashing in on billions of dollars from his holdings this year. That decision was documented in SEC (Securities and Exchange Commission) filings required by the American authorities.
American markets did not enjoy a day off yesterday and were instead concerned with ISM services PMI. In April’s report, the services sector unexpectedly expanded from a nine-month low set in March, as new orders and business activity supported a more positive outlook.
Mainstream British politics is still processing the shockwaves from last week’s local elections, where Reform UK made substantial gains in councils, mayoralties and trumped the Labour party by just 6 votes in the Runcorn by-election. As recriminations began in both the Labour and Tory parties, Reform leader Nigel Farage celebrated “the beginning of the end” of the Conservatives – arguably the world’s most successful political party.
This week features interest rate decisions from the Bank and the Federal Reserve. While the Bank is expected to announce a quarter-point cut, the outlook is less clear when it comes to the Fed. Both a hold and a similarly-sized cut are in play.
Things are less busy outside the world of monetary policy. German and Chinese trade data will be interesting opportunities to evaluate the impact of tariffs, although the economic calendar shows few really significant events aside from these.
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GBP: In the hands of the Bank
A good week for the pound was cancelled out by a slide across Thursday and Friday. While policymakers are widely expected to announce a minor cut for interest rates, the present danger is they could signal larger cuts on the way. A more aggressive posture from the Bank of England would likely spell more trouble for GBP.
GBP/USD: the past year
EUR: Shrugging off inflation
Persistent inflation did not have too much of an effect on the euro to end last week. That perhaps reflects both the gap between the next ECB decision (June) as well as the likelihood that price pressures will soon be eased by the lower cost of petrol and a strong euro, which helps to cheapen imports on a relative value basis.
GBP/EUR: the past year
USD: Concerns fading… for now
After a frantic few weeks, some of the larger, more foundational questions about the US dollar’s (and indeed, the United States in general) short-term future have dissipated. The US dollar rallied to end last week on news of trade talks with China and further evidence of resiliency when it comes to jobs and output.
EUR/USD: the past year
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