UK: Weekly FX Market Update 24 April

GBP

• Last week UK CPI was released at 10.1%. This is still five times the Bank of England’s (BoE) target – will this lead to further BoE rate hikes?

• Bloomberg analysts project a terminal rate of 5% for the BoE.

• Retail Sales dropped 0.9% in March - With the shoppers staying away could the UK economy experience ‘stagflation’?

• Public Sector Net Borrowing is released this week, showing how indebted the Government is.

• Will the market choose the ‘stagflation’ theme and sell sterling, or support the ‘interest rates are going higher’ narrative, buying and strengthening the pound?

EUR

• Eurozone CPI is at 6.9%, more than three times the European Central Bank’s (ECB) target.

• ECB’s Kazak said that the May interest rate decision was between a 0.25% and a 0.5% rate hike – a hawkish view and potentially good news for the Euro.

• ECB economist Lane said that ‘if baseline projections persist, it will be able to raise rates further’.

• German Preliminary CPI and Flash GDP are both released on Friday. Will they bring a volatile end to April trading?

USD

• The US Dollar managed to gain ground last week, after six weeks of declines.

• Analysts attributed this strength to continued hawkish comments from the Fed and the allaying of fears over the US banking system.

• This week sees advance GDP & Core Personal Consumption Expenditure released, the Fed has highlighted both as being drivers behind it’s interest rate decision making – could these create a volatile month end?

US Regional bank First Republic Bank, which lost 90% of its value despite a huge USD 30 billion injection of capital in March, publishes its latest results on Monday. Could the market get another attack of the jitters if the First Republic results are poor? Will this weaken the USD?

Events for the week ahead:

Mon Apr 24

All Day Australia Bank Holiday

09:00 EUR German IFO Business Climate

12:30 USD First Republic Bank Earnings Report

Tue Apr 25

All Day Italy Bank Holiday

07:00 GBP Public Sector Net Borrowing

15:00 USD CB Consumer Confidence

Wed Apr 26

02:30 AUD CPI

13:30 USD Durable Goods

Thu Apr 27

13:30 USD Advance GDP

Fri Apr 28

00:01 JPY Bank of Japan (BoJ) Interest Rate Decision

05:30 JPY BoJ Press Conference

07:00 EUR German Preliminary CPI

10:00 EUR Flash GDP QoQ

13:30 USD Core Personal Consumption Expenditure Index

15:00 USD Revised Univ of Michigan Consumer Sentiment