Global Themes

  • PMI, MPC and Brexit key to Sterling’s week
  • Dollar rallies but upside capped
  • One more hurdle for Italy’s Conte

GBP

PMI, MPC and Brexit key to Sterling’s week 

UK PMI data, speeches from Bank of England (BOE) Monetary Policy Committee (MPC) members and preparations for Brexit talks will be the main talking points and influences on Sterling this week. Today we see the release of the construction PMI for May at 09:30am, with a fall forecasted from the April release, down to 52.0 from 52.5. Tomorrow sees the important services PMI number, with services being the main contributor to the UK economy, with a slight increase for the May number to 53.0 from 52.8 in April predicted. GBP/USD has opened trading this week above $1.33, after falling as low as $1.3251 on Friday. Sterling has stayed in the €1.14 handle against the Euro, which it was able claw back last week, but it hasn’t yet been able to have a run at the €1.1450 mark, which looks like a key breaking point of resistance.

MPC members Silvana Tenreyro, Jon Cunliffe, Dave Ramsden and Ian McCafferty will all be speaking this week, with investors looking for any hopes that we may still see an interest rate increase this year. The next BOE meeting is on the 21st of June and markets see little chance of a change at this stage, with the current probability of rates staying the same being 94.25% (source: Reuters). Therefore the thoughts of this week’s MPC speakers will be key. Only Ian McCafferty, of the 4 members speaking this week, has been voting for a rate increase and he is leaving the MPC in September. If the other members do not change their opinions, and one of the more vocal ‘hawks’ is leaving, then any odds of rate hike in 2018 could be cut considerably.

  • Speaking to the BBC yesterday, the Home Secretary Sajid Javid said that he does believe the UK will be ready for the Brexit negotiations to move to the next phase at the key EU summit at the end of the month. The summit takes place on the 28th and 29th, and Mr Javid also rejected reports published in the Sunday Times at the weekend that the UK would run short of food and medicine within days of a ‘no deal’ Brexit scenario.


USD

Dollar rallies but upside capped 

The US Dollar enjoyed a healthy employment reading on Friday, with the headline non-farm payrolls jobs report smashing expectations to come in at 223,000 against an expected 188,000 for the period for May. Unemployment for the same period fell to 3.8% - a low not seen since April 2000. However, confusion and uncertainty over potential political risks could keep the dollar’s ascension limited. Though a date is agreed upon between US President Donald Trump and North Korean Premier Kim Jong Un, there is always the probability of either party cancelling.

The US Dollar index (a measurement of the dollar against a basket of currencies) remained flat on Friday. EUR/USD finally recorded a positive weekly close out, after 6-weeks of consecutive declines for the Euro. Traders defended the $1.15 level and pushed the cross back towards the $1.17 handle, where we just trade below this morning. The pair could oscillate around these levels for the meantime while market participants figure out what direction to trade next.

  • Though there is little data this week, market participants will gear up for next week’s US Federal Reserve two-day monetary policy meeting to decide on interest rates. According to the CME futures markets, there is a 91% expectation of a rate increase and 85% according to Reuters. President Trump and Japanese Premier Shinzo Abe will meet at the White House on the 7th of June.


EUR

One more hurdle for Italy’s Conte 

Last week Giuseppe Conte was sworn in as Prime Minister for Italy, and this week he will seek approval from parliament to form a government. This will be the final hurdle for Mr Conte to take power, before he tries to set the agenda about overhauling European Union rules and the established order, which the new coalition has been worrying Brussels about with its rhetoric.

Mr Conte signalled his conviction that the vote will be no problem, saying he would then hold a bilateral meeting with German Chancellor Angela Merkel at the summit of the Group of Seven nations in Canada on June 8-9. The vote is expected to go smoothly and the motion to pass, however time will only tell if this will have any longer-term impact on the Eurozone and the Euro. This morning the Euro opened trading with a positive tone as it attempted to break back into the $1.17 level against the US dollar.

  • The week ahead for the Euro will hinge on data releases and European Central Bank (ECB) speakers. ECB President Mario Draghi will be in talks with Jean-Claude Trichet, the former ECB president, for the 20th anniversary of the ECB. Peter Praet, an ECB broad member, will also be speaking on Wednesday. The main data releases for the Euro will be the services data release on Tuesday and the GDP release on Thursday.


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