Sterling carried its momentum through last week, supported by a smooth political transition at home and a softer inflation picture in the US. With a run of UK data and a European Central Bank decision ahead, this week gives markets plenty to work with.
Sterling supported as the political picture clears
The pound rose around 0.4% against the dollar last week, its third consecutive weekly gain, and touched a two month high midweek. The move was driven by reports that incoming Prime Minister Andy Burnham intends to appoint Shabana Mahmood as Chancellor, a choice markets read as a signal of fiscal caution. Confirmation of Burnham as Labour leader on Friday completed an orderly succession, and he is expected to take office today.
The data added support. May GDP showed the UK economy returning to growth after a small contraction in April, keeping the Bank of England’s cautious stance intact. Against the euro, sterling recorded a fourth consecutive weekly gain, with GBPEUR holding near the top of its range for the year.
Dollar pulled in both directions
US inflation for June came in well below forecast, with the headline rate falling further than markets had expected. The dollar index dropped 0.6% in the immediate aftermath. Federal Reserve Chair Kevin Warsh struck a firm tone in his congressional testimony shortly afterwards, stressing that the committee has no tolerance for persistently elevated inflation, which helped the dollar recover part of the move.
Later in the week, stronger retail sales and jobless claims figures gave the dollar renewed support, while tensions in the Middle East added a layer of safe haven demand. GBPUSD gave back a portion of its midweek gains into Friday as a result.
Euro on the back foot ahead of ECB week
The euro fell against the pound for a fourth straight week, weighed down by the wide interest rate gap between the Bank of England and the European Central Bank. Markets now see a hold as by far the most likely outcome at Thursday’s ECB meeting, so attention will centre on the press conference and any signal about the path for the autumn. Against the dollar, the euro found brief support from the soft US inflation print before the move partly faded.
The week ahead
Monday 20 July
- Andy Burnham expected to take office as Prime Minister, with initial cabinet appointments in focus (GBPUSD, GBPEUR)
Tuesday 21 July
- UK labour market report, including wage growth and unemployment (GBPUSD, GBPEUR); German ZEW economic sentiment survey (GBPEUR)
Wednesday 22 July
- UK inflation data for June (GBPUSD, GBPEUR)
Thursday 23 July
- European Central Bank interest rate decision and press conference (GBPEUR)
Friday 24 July
- UK retail sales for June and flash PMI surveys for the UK, eurozone and US (GBPUSD, GBPEUR)
With a Federal Reserve decision and a Bank of England decision following at the end of the month, this stretch of data will shape expectations across all three major currencies. If you have upcoming currency requirements, speaking with your specialist ahead of these events can help you plan with more certainty.
