Currency Note

Pound weaker ahead of vote of confidence in Prime Minister

By Alex Bennett June 6th, 2022

Sterling is weaker against both the euro and the dollar this morning following the Jubilee Bank Holiday weekend. This comes ahead of a fairly light week for UK economic data.

News this morning reveals that a vote of confidence in the Prime Minister is expected to take place between 6pm and 8pm this evening. This follows a number of Conservative MPs submitting letters to say that they no longer have confidence in the Prime Minister.

In the secret ballot, Boris Johnson will need to secure a majority (180 votes) to stay in power. If he wins, he would be exempt from another vote for a year.

The main event on the continent this week is the European Central Bank’s interest rate decision, which is due to take place on Thursday. Officials are expected to announce the end of monetary stimulus and pave the way for interest rate hikes in the coming months.

Across the pond, the main event this week is US inflation data, which is due to be released on Friday. The annual inflation rate is expected to stay the same at 8.3%, whilst core inflation is predicted to have dropped slightly in May.

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GBP: PMI figures due tomorrow

The pound is weaker against the euro and the dollar this morning after weakening towards the end of last week. This was mainly due to euro and dollar strength.

This week, the pound has the European Central Bank’s monetary policy meeting to contend with, which could impact sterling indirectly. The ECB’s guidance on interest rates and the future of monetary policy could indicate how the Bank of England’s interest decision unfolds next week.

PMI figures, which indicate how the services and manufacturing industries performed in May, will be released for the UK tomorrow. It is expected to show that growth in both sectors slowed last month. We’ll also see retail figures and house price data this week.

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EUR: ECB meeting on Thursday

The euro is stronger against the pound and slightly weaker against the dollar this morning, after strengthening last week.

This comes ahead of the European Central Bank’s monetary policy meeting, which will take place on Thursday. Officials are set to end their bond buying programme and pave the way for interest rate hikes at subsequent meetings. This is in a bid to tackle high inflation, which came in at 8.1% year-on-year in May.

Ahead of the ECB’s meeting on Thursday, construction PMI and GDP figures will be released this week.

USD: US inflation data this week

The dollar is slightly lower against a basket of currencies this morning, after strengthening towards the end of last week.

Non-farm payrolls data gave the dollar a boost on Friday. This revealed that the US economy added 390,000 jobs in May, the least since April last year but above market forecasts of 325,000. This means that the economy is 822,000 jobs or 0.5% below its pre-pandemic level, indicating that the labour market is getting close to full employment.

The markets will now focus on US inflation data, which is due to be released on Friday. Predictions state that it will come in at 5.9% in May, a fall from 6.2% in April.

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