Currency Note

Pound in early sell off after stable start to week

By Alex Bennett May 10th, 2022

Sterling swung by around 0.5% against the euro yesterday before returning to where it started the week. It showed some growth against the US dollar and is currently close to 1% against its lowest point on Monday morning.

Early movements this morning are so far generally negative for sterling.

While stock markets have been crashing globally and central banks wrestle with the inflation/growth conundrum, the currency markets enjoyed a relatively stable start to the week.

In the Queen’s Speech opening parliament today, the government is expected to focus on the economy, with measures to remove some rules on – for example – business investment and planning controls.

Of concern to business may be news this morning that the Foreign Secretary is about to abandon the Northern Ireland protocol, setting up a conflict with the EU.

Elsewhere, the airwaves are alive with speeches from central bankers from the UK, EU and US, outlining their plans to control inflation while promoting growth.

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GBP: Sterling’s indifferent start to week

The pound has remained broadly steady against the euro since Friday, while strengthening fractionally against the US dollar. However, early trading today has been negative.

There wasn’t a huge amount of data around yesterday, but the UK housing market is remaining in robust health, with the BBA Mortgage Rate showing the highest number of approvals since March 2020. Also yesterday, Michael Saunders, one of the Bank of England’s Monetary Policy Committee (MPC) members said in a speech that inflation could exceed forecasts and interest rates may need to rise faster than expected to combat it. He was outvoted in last week’s MPC meeting.

This morning we have seen the effect of the rising cost of living as the BRC retail sales monitor for April showed a decline of 1.7% compared to last year and a 0.4% decline from last month.

The big event of the week is undoubtedly GDP for the last quarter, Q1, which comes out on Thursday along with a lot of other industrial, manufacturing and construction data.

GBP/USD past year

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EUR: Euro holds onto gains

The single currency has held onto most of the strong gains it made last week of between 0.50% and 3.50% against its major rivals, while being pegged back a little yesterday against all but the US dollar and Japanese yen.

It’s not a very busy day for data, but there will be ZEW Economic Sentiment for the eurozone and Germany, which could be even worse than April’s -41 reading, its lowest since March 2020.

The main events of the week may be tomorrow, when several members of the European Central bank will be talking about interest rates, including Christine Lagarde, ECB President.

USD: Dollar maintains strength as inflation data looms

It’s been another powerful week for the US dollar, strengthening by at least 1% and as much as 3% against most of its major rivals. The one exception has been the euro, which it has weakened against.

There wasn’t much to write home about yesterday on the data front, although the background of America’s extremely low unemployment of 3.6% and further boost to non-farm payrolls on Friday is still strengthening the dollar. This week it’s all about inflation and interest rates and today we’ll hear from several members of the FOMC – America’s interest-rate setting committee – and tomorrow is inflation data. So there could well be market movement.

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