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The pound strengthened against the euro and the US dollar on Tuesday.
Sterling starts Wednesday within a whisker of its strongest level against the euro since last summer, although fresh strikes exchanged by the US and Iran following the downing of an American helicopter served as a reminder of the present uncertainty.
After a tricky end to last week, the pound gained almost half a cent at the euro’s expense yesterday and also recorded an advance over the US dollar, partly due to reduced tensions in the Middle East. The key brent crude oil index dipped to its lowest level since April yesterday as hopes grew that a ceasefire between Iran and the United States was drawing nearer.
Most people might be setting up their bunting and their sweepstakes for the World Cup, but currency markets remain laser focused on a crucial run of data and central bank meetings lurking between now and the weekend. In the US, economists estimate the headline inflation rate may have creeped as high as 4.2% in May, a scenario that would likely force the Federal Reserve’s hand towards the hike lever.
Before the European Central Bank has its turn in the spotlight tomorrow, the Bank of Canada will unveil its latest interest rate verdict this afternoon. With inflation rising (but from a low level), policymakers are expected to announce another hold, in stark contrast with the ECB, which is widely expected to hike for the first time in almost three years tomorrow lunchtime.
China quietly recorded a record month for exports in May. International sales increased by an annualised 19.4% last month as the trade surplus widened to over $100bn. Not even a rebound in domestic demand, which helped to drive imports higher, could prevent the surplus reaching its highest level since January.
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GBP: Almost recovered
It has taken sterling two days to recover the cent and a half it lost to the US dollar over the course of just a few hours on Friday. The pound may find it difficult to strengthen further ahead of what feels a significant GDP report to end the week, although a calmer domestic political situation has at least toned down some of the more negative mood music.GBP/USD: the past year
EUR: In need of hawkish boost
The euro has drifted somewhat this week, with any potential momentum ahead of a likely rate hike stymied by a lack of underlying economic dynamism. Nevertheless, the potential of some hawkish momentum generated by tomorrow’s decision could give it exactly the boost it needs as we head towards the second half of the year.GBP/EUR: the past year
USD: One of two ways
The US dollar weakened against rival currencies on Tuesday thanks to a more constructive tone around the Middle East. This afternoon’s inflation report can go one of two ways for the dollar. Higher prices would likely boost it on the belief that the Federal Reserve will be forced to hike rates, while a cooler than expected outcome would likely be negative, in the short term at least.USD/GBP: the past year
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