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UK: Weekly FX Market Update 22 May

CalendarMay 22, 2023
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GBP

  • The pound had a mixed week, gaining against the euro but slipping against the US dollar.

  • The fall in GBPUSD could be attributed to comments made by BoE Governor Bailey, stating that inflation will fall sharply in the coming months, highlighting the decline in energy prices, though he also added that concerns remain about high food prices.

  • UK CPI for April is released on Wednesday, with forecasts of a drop from 10.1%, to between 9.5% and 8% - to what extent could this weaken the pound?

  • Retail sales round the week off. Did the UK shopper cut spending, just as it did last month?

EUR

  • EURUSD has fallen 2% over the past two weeks, despite reports that another ECB rate hike could happen in September.

  • ECB President Lagarde pleased the hawks by saying that the ECB is at a key juncture as it needs sustainably high rates, however, the euro also weakened against the pound.

  • Despite Eurozone CPI still growing annually by 7%, Bloomberg forecasts suggests that the ECB will hike just once more - could this be the driver behind the recent euro weakness?

USD

  • The market bought US Dollars last week as positive news emerged from Congress over the Budget deficit ceiling. However, late on Friday, the GOP debt negotiators walked out of discussions, with head negotiator Graves saying that the debt limit talks were ‘at a pause’.

  • The US regional banking sector had its biggest one-day rally of the past two years. This was prior to US Treasury Secretary Yellen saying on Friday that 'more bank mergers may be necessary’.

  • Whilst Fed Chair Powell opened the door to a possible US rate pause in June, it was slammed shut by Fed presidents Mester, Barkin and Logan, with the latter saying that she doesn’t yet see a case for a pause amid high prices.

  • FOMC meeting minutes are released on Wednesday. How dovish will they be?

  • Preliminary GDP is released on Thursday. How strong is the US economy?

Events for the week ahead:

Mon May 22

All Day Canadian Bank Holiday

15:00 EUR Consumer Confidence

Tue May 23

07:00 GBP Public Sector Net Borrowing

09:00 EUR Flash Manufacturing & Services PMI

09:30 GBP Flash Manufacturing & Services PMI

14:45 USD Flash Manufacturing & Services PMI

Wed May 24

03:00 NZD Interest Rate Decision

04:00 NZD RBNZ Press Conference

07:00 GBP CPI

09:00 EUR German IFO Business Climate

19:00 USD FOMC Meeting Minutes

Thu May 25

13:30 USD Prelim GDP QoQ

Fri May 26

02:30 AUD Retail Sales

07:00 GBP Retail Sales

13:30 USD Core Personal Consumption Expenditure Index/Durable Goods/Goods Trade Balance

15:00 USD Revised Uni of Michigan Consumer Sentiment

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