There does seem to be plenty coming up that could set sterling onto new levels however with fresh consumer spending data helping to clarify what kind of playing field the UK economy might find itself on the months to come.
This morning sees the latest Retail Sales figures for April. Given the Bank of England have come out and said the UK economy should be positing record levels of expansion, it is not surprising to hear the markets are expecting to see levels jump by over 30% in today’s releases.
This afternoon’s business confidence surveys are equally worth monitoring. One would expect that as restrictions are being gradually lifted, surely managers across the country are feeling more optimistic about the opportunities ahead.
Positive figures here would certainly fall in line with the Bank of England’s expectations and so you would expect impact from both may have already been factored into to GBP exchange rates. Deviations from the projected levels could draw volatility back to sterling however and could then draw extra attention to Tenreyno’s speech on Tuesday afternoon (BoE). Much has been made of the direction inflation levels may take, particularly given the heavy disruption to supply chains whether linked to the pandemic or indeed Brexit.
The growing risk of another Scottish referendum has also long been marked as one of the many negative factors that might be holding sterling’s value back throughout this year. An interesting trend has started to form since March however and is well worth monitoring if you are in the market for foreign currency in the weeks and months ahead.
The Conservatives seem to have been gaining rare traction in Scotland with the proposed support fund of £800m to help the nation on its road to recovery. If the majorities in Scotland deme the economic recovery as a greater priority than that of the SNP’s push for independence you could argue sterling might find extra support on the international stage.
Speaking of supply chain disruptions, yesterday it was released that German producer prices had jumped by 5.2% in April, marking the largest year on year increase in over 10 years. The spike comes at a time when the European Central Bank have been continually quizzed on the growing costs of living within the eurozone which in turn may begin to weigh on the competitivity of European multinationals, which in turn could stunt the bloc’s recovery in the months ahead.
Though ECB member Isabel Schnabel reaffirmed the central bank’s stance that the ongoing surge in prices is only temporary, the consistent growth rate might start to alarm investors. It is unclear for now how much of this jump in prices will be passed down to the end consumer. Perhaps most importantly, it is still unclear how far prices will continue to rise.
Moving forward, we could be looking at rising volatility as we progress through next week with European consumer activity taking centre stage. Talks around a switch up in monetary policy from the European Central Bank have been essentially muted since last summer. The message has remained consistent. Until inflation levels recover and indeed the roll out of vaccination has reached a degree of consistency across member states, the ECB will not consider winding down it’s stimulus package. It could be argued that this extra support is one factor that is anchoring EUR exchange rates on the international stage, with investors wary of committing to the single currency further given the ongoing risk to its value given the substantial levels of money being injected into the bloc on a daily basis.
As a result of this, the markets might be adding further weight behind consumer centric data releases. Knowing that a pickup in consumer confidence and spending levels may well spark new conversations within the ECB and potentially bringing changes to monetary policy into closer range.
Tuesday might mark the start of this trend with the latest GDP release from European leaders Germany, along with their latest business confidence survey. The expectation is for slight improvements on both fronts with their gradual reopening of activity from the early spring lockdown.
However, Friday could prove to be the most volatile for EUR exchange rates with the latest consumer spending levels being produced from France in the morning, potentially acting as another precursor to the subsequent trackers for the EU bloc as a whole which could hold most of the weight given it’s ability to provide a snapshot of potential activity levels across Europe in the months to come.
US dollar holders have been forced into further losses as we finish this week despite another round of positive data from the US jobs market which was meant to provide a degree of support to the greenback on the international stage.
Indeed, requests for unemployment insurance dropped again last week to record lows reflecting a recovering US economy which could be drawing added investor appetite as time goes on.
Evidently, the markets took the Federal Reserves cautions around inflation with a pinch of salt, potentially taking the view that there is still a long way to go before we see the Fed make any lasting changes to its monetary policy.
In a similar fashion to what was discussed the EUR section, you could argue the markets will put extra weight behind the latest real estate figures and consumer confidence releases due next Wednesday. Data from the property market has previously been used to gauge future economic activity and should levels reflect a change in trend here we might equally see a shift in pricing for the US dollar too.
Thursday could be the biggest market mover for the dollar however with a strong combination of the latest GDP figures as well as potentially pivotal data from the US jobs market. It will be particularly interesting to see if Wednesday’s releases highlight a change in a consumer activity which is intrinsically linked to the jobs market.
Equally, those in the market for US dollars might want to take notice of price movement against commodity-based currencies next week. Typically, when the markets grow wary of global risks the US dollar has gained in value and to date you could argue the acceleration of cases in India helped support the dollar on the international stage. This switch in sentiment could well be tested however with the Reserve Bank of New Zealand due to provide their monetary policy update on Wednesday morning as well on top of Canada’s latest GDP release due on Friday.