UK: Weekly FX Market Update 15 May

GBP

• Sterling moved higher for most of last week in the build up to the BoE and their decision to hike by a further 0.25% on Thursday, with inflation still above 10%.

• However, GBPUSD fell with the US Dollar making a comeback on Friday, following the calming of nerves over US banks, the uncertainty of the US debt ceiling and implications of a US debt default.

• Quarterly GDP continues to avoid recession with the Bank of England now forecasting growth rather than contraction for the UK economy.

• However, the economic recovery is still weak. Can the pound continue its gains, or will recent yearly highs prove to be the top of sterling’s consistent move higher since the September low?

• UK Employment data is released on Tuesday.

EUR

• The euro struggled last week against both the US dollar and sterling.

• ECB President Lagarde speaks twice this week. Can she assure the market that more rate hikes will come and support the euro? Or will the euro have a spell of weakness as the Eurozone, and German economy in particular, struggle?

• Bloomberg reported last week that some ECB members are considering a rate hike in September. Coud this really happen?

• Can the EU economic forecasts and ECB economic bulletin shed further light on the path for the euro?

USD

• As US regional banks steadied themselves so does the US dollar. Will new regulation give the market confidence that the turbulence is really over?

• Treasury Secretary Yellen said that the government will run out of money by June 1st. We have been down this road before; will we again see a last-minute resolution to calm market nerves? Or as JP Morgan CEO Dimon said, will we see a potentially ‘catastrophic’ default?

• US Retail Sales are released on Tuesday.

• Fed Chair Powell rounds the week off on Friday. Will talk of a pause of rate hikes weaken the dollar?

Events for the week ahead:

Mon May 15

10:00 EUR EU Economic Forecasts

13:30 USD Empire State Manufacturing Index

14:15 USD FOMC Kashkari Speaks

17:00 GBP MPC Pill Speaks

Tue May 16

02:30 AUD Monetary Policy Meeting Minutes

07:00 GBP Claimant Count Change/Average Earnings/Unemployment Rate

10:00 EUR ZEW Economic Sentiment

13:30 CAD CPI

13:30 USD Retail Sales

14:15 USD Industrial Production

15:00 EUR ECB President Lagarde Speaks

Wed May 17

02:30 AUD Wage Price Index

10:00 EUR CPI

10:50 GBP BoE Gov Bailey Speaks

Thu May 18

All Day Bank Holiday Germany/France/Switzerland

02:30 AUD Employment Data

08:45 GBP BoE Pill Speaks

13:30 USD Unemployment Claims

15:00 USD Philly Fed Manufacturing Index

Fri May 19

09:00 EUR ECB Economic Bulletin

10:45 GBP MPC Haskel Speaks

13:30 CAD Retail Sales

16:00 USD Fed Chair Powell Speaks

20:00 EUR ECB President Lagarde Speaks