Key Points
This week focuses on the Interest Rate decisions.
US Federal Reserve set to keep interest rates unchanged.
ECB set to increase Interest Rates by 25bps.
FX Update
GBP
Sterling notched back-to-back weekly gains against the greenback last week, rising to one-month highs north of the $1.25 handle, with the quid taking full advantage of the broad-based USD weakness seen across G10 FX
The move came despite the UK’s economic fundamentals remaining weak, and with stagflation remaining a concern, both factors which may point to a short position squeeze having more than a subtle helping hand in cable’s rally
Speaking of data, this week brings a couple of key releases, including the latest labour market and GDP figures; the former is likely to show unemployment having risen to 4.0% in April, while the latter should point to a modest 0.1% growth in the same month
EUR
As with the GBP, the common currency managed to take advantage of the broadly softer USD last week, notching its first weekly gain against the greenback since the start of March, and reclaiming the $1.07 handle
Nevertheless, some of the shine was taken off the EUR’s performance by worrying economic data, indicating a further slowdown in China, as well as Q1 GDP revisions confirming that the eurozone slipped into a technical recession over the winter
This week, all eyes will be on Frankfurt, for the latest ECB decision, where policymakers are expected to raise rates by 25bps, while indicating that a further such hike will be delivered in July, as signs of underlying inflation prove stickier than desired
USD
The greenback traded broadly softer last week, with the dollar index (DXY) nothing its first consecutive weekly losses since mid-April, though the index was able to close north of key support at 103.50 on Friday
Continued positive risk appetite remains a headwind to the USD, and with the S&P 500 having formally entered a new bull market last week, plus with equity volatility remaining subdued, said headwinds may persist for some time to come
Looking ahead, Wednesday’s FOMC decision is set to see the Committee leave rates unchanged at 5.00% – 5.25%, as policymakers continue to assess the impact that 500bps of tightening in just over a year is having on the economy; however, with inflation remaining considerably above target, the FOMC should retain their tightening bias, leaving a hike in July firmly on the table
World News
UK firms could gain access to US green funding as part of a plan to strengthen UK and US ties announced by Sunak and Biden. The Atlantic Declaration revealed commitments on easing trade barriers, closer defence industry ties and a data protection agreement. This means UK electric car firms may get access to US Green tax credits and subsidies.
The windfall tax on oil and gas firms will be abolished if prices lower to normal levels for a continual period the government have revealed. This would cut the overall tax rate on energy firms from 75% to 40%, following concerns that investment by energy firms would be cut due to the windfall tax.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Tuesday 13th June | US | CPI y/y | 4.90% | 4.10% |
| Wednesday 14th June | UK | GDP m/m | -0.30% | 0.20% |
| Wednesday 14th June | US | Interest Rate Decision | 5.25% | 5.25% |
| Thursday 15th June | EU | Interest Rate Decision | 3.75% | 4.00% |
| Thursday 15th June | US | Retail Sales m/m | -0.40% | -0.10% |
Indices
| Share Index | Prev. Close | Open |
| FTSE100 | 7562.36 | 7562.36 |
| DAX | 15949.84 | 16052.91 |
| CAC40 | 7213.14 |
7250.15 |