Spectrum FX Daily Market Update

Deluge of data in focus for UK Sterling

Last week's Brexit headlines and economic contraction figures put sterling under pressure before Deputy BoE Governor Ramsden gave the currency some support calling for higher interest rates. Markets will be weary if the UK will sign off plans for a law to unilaterally scrap parts of the Brexit deal but there is also a deluge of domestic data that will keep sterling markets volatile.

Inflation, jobs data and retail sales are due for release on Tuesday, Wednesday and Friday respectively, all of which will paint a picture on the current cost of living crisis but could also dictate rate hike expectations for the Bank of England.

No domestic today but there will be speeches from BoE members Ramsden Saunders and Governor Bailey.

Euro

News over the weekend saw Sweden and Finland intending to join the NATO alliance, a move that will no doubt upset Russia. Comments from Russian officials last week suggested that there could be retaliatory actions should this happen so we wait to see if and what this may be.

Whilst EU states at the tail end of last week contemplated delaying sanctioning Russian oil, Germany announced its intention to go ahead with a ban even without the rest of the EU.

Although we continue to see more ECB members talk up the potential of a rate hike in July, it would seem the bigger concern for markets is the safe haven play and given Europe's close proximity to the impact of further geopolitical tensions from the war in Ukraine, talk of parity versus the US dollar continues to rise.

ECB member Villeroy has commented this morning that a too weak euro goes against ECB’s price stability goal. This is the first mentioning of recent currency members by the ECB. Whether this puts a floor on the euro will be interesting over the coming days and if other ECB members echo this notion. However, given rate hike differentials and geopolitical exposure, the euro may well still be exposed to weaken.

ECB member Lane and Panetta will also be speaking today.

USD

We saw a pause on USD gains on Friday with a slight interest in risk coming into the market after Fed Chair Powell once again reiterated that he sees only 0.5% of rate hikes in the coming months and thus taking the 0.75% rate hikes off the table.

The interest rate cycle is only one facet of this global US dollar demand. The situation in China is also a contributing factor following the lockdowns in March and the impact this has had on supply chains and of course economic growth. Talks over the weekend of Shanghai easing lockdown measures saw risk appetite increase in the early hours of the morning but since then data from China showed that industrial production and retail sales all fell short of expectations taking out risk appetite again.

Domestic data this week from the US comes in the form of retail sales and industrial production but the main driver for the US dollar looks set to be risk sentiment with all eyes on the situation in Ukraine as well as China.

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