Key Points
Majority of key data out on Tuesday.
Bank of England raised rates last week, its 12th consecutive increase.
Investors moving back towards a USD safe haven.
Market Update
GBP
Sterling suffered at the hands of a broadly stronger dollar last week, with cable slipping back under the 1.25 handle, having made strong progress of late, as the bears bounced back with a vengeance.
The pound’s declines came despite a relatively hawkish decision from the BoE, who hiked rates by 25bps, the 12th consecutive increase in Bank Rate, while also maintaining a conditional tightening bias, signalling at least one more hike is likely to come this cycle, in June; furthermore, the MPC also ditched their forecast for the UK to fall into recession this year, after a stronger than expected start to the year.
Looking ahead, the latest labour market data highlights this week’s calendar, with all eyes falling on earnings growth, which is set to remain at around 6% YoY, a level that is clearly incompatible with a speedy return to the BoE’s 2% inflation aim.
EUR
The common currency also lost ground last week, slipping back under the $1.09 handle for the first time in a month, despite a plethora of hawkish remarks from ECB speakers, in addition to ‘sources’ reports indicating that policy tightening may continue into September.
It would appear that growth concerns have taken over as the main driver of the EUR for now, with the market continuing to digest poorer than expected German activity figures, and slipping commodity prices also signalling caution about the economic outlook.
This week, the eurozone calendar is relatively light in terms of hard economic data, though a plethora of ECB speakers are due on the wires, while the latest Chinese output data will be closely watched in the context of the aforementioned slowdown fears.
USD
The greenback rebounded strongly last week after spending some months on the back foot, with the Dollar Index notching its best week of the year, and since last September, largely shrugging off an unexpected cooling in headline inflation to 4.9% YoY.
The buck’s resurgence came as investors appeared to grow more pessimistic on the global growth outlook, while a position squeeze may have helped the move along, as weak shorts begun to be flushed out of the market.
Said squeeze may continue this week, though traders will also pay close attention to the latest retail sales figures, in addition to remarks due from Fed Chair Powell on Friday, with futures contracts continuing to price as much as 70bps of Fed cuts by the end of the year.
World News
Pension savings platform Smart secured £75m funding injection from a New York based private equity investor. Smart which was launched in 2015 manages over £5.5bn, serving over one million savers and 70,000 employers. The funding deal will be one of the largest deals by a UK based fintech firm this year.
The UK has pledges to send hundreds of new long range attack drones to Ukraine following Zelenskyy meeting with Rishi Sunak. The drones have attached ranges of over 200km, which will be delivered in the coming months. This comes after the German government promised Kyiv a £2.35bn support package and France pledging to supply further military aid.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Tuesday 16th May | UK | Claimant Count Change | 28.2k | 31.2k |
| Tuesday 16th May | CA | CPI m/m | 0.50% | 0.50% |
| Tuesday 16th May | US | Retail Sales m/m | -1.00% | 0.80% |
| Wednesday 17th May | UK | BOE Gov Bailey Speaks | ||
| Friday 19th May | US | Fed Chair Powell Speaks | ||
Indices
| Share Index | Prev. Close | Open |
| FTSE100 | 7754.62 | 7754.62 |
| DAX | 15913.82 | 15966.96 |
| CAC40 | 7414.85 | 7443.38 |