After a volatile week across major markets last week, there is a sense of calm taking hold once more. With a light economic calendar stateside, there is little scheduled that is likely to change the path of a renewing USD negative bias. The place for action may well be seen through GBP forex crosses, as sterling traders digest a slew of data and the threat of the Indian variant of COVID.
For the US it is a week of Fed speakers, FOMC minutes and flash PMIs. None of these should hit markets with any real surprise.
Major UK data on unemployment, inflation and retail sales to impact on GBP throughout the week
Eurozone flash PMIs are the main focus
Fed speakers and minutes along with flash PMIs
The calendar is looking fairly thin for the US this week. The regional Fed surveys for New York (Mon) and Philadelphia (Thu) are unlikely to create too many surprises. Both are expected to be shaved back but unless there is a dramatic miss, these are unlikely to change the expectation of a US economic re-emergence throughout Q2. Friday’s flash PMIs (thin dotted lines on the chart below) are expected to also show continued survey confidence in the recovery.
There are a couple of Fed speakers to look out for. Richard Clarida (voter, leans dovish) is very closely aligned with chair Powell and could be a good gauge for the overall committee. Focus as ever will be on when the potential taper of asset purchases may come in. Raphael Bostic (voter, leans very slightly hawkish) is also worth looking out for.
Wednesday’s FOMC minutes of the April meeting will also be poured over for hints towards a taper, any concerns over inflation and signs of the committee edging to be less dovish.
We do not any of these factors to seriously impact what we see as renewing USD selling pressure.
Watching UK data could be the place for action
There is a slew of tier one UK data this week. Tuesday’s unemployment should be relatively sedate with few surprises expected at a stable rate of 4.5%.
The inflation data will be worth watching on Wednesday, with headline CPI expected to jump to +1.4% YoY (from +0.7%) and core CPI to rise to +1.3% (from +1.1%). But with the difficulty that economists are having to forecast April data this year (with the huge declines that were seen in April 2020), there is plenty of room for surprises. The question is whether markets look past the surprise and just see inflation rising as a given with sharply rising input prices already factored in.
Retail Sales are expected to grow by another impressive +4.5% on the month (even after a +5.4% growth in March). As the UK economy moves into its 3rd stage on the roadmap out of lockdown, this should help to further fuel the recovery in consumer spending.
However, there is a potential fly in the ointment, with the Indian variant of COVID is in the UK now and growing. How this develops in the coming few weeks could be crucial as to how confident traders are of pricing for recovery in UK assets (GBP and FTSE 100)
Eurozone flash PMIs to reflect growing confidence in the recovery
The Eurozone may be lagging the US and UK due to its slow roll-out of the COVID vaccines. However, they are catching up fast now. The main Eurozone data of the week, the flash PMIs are likely to reflect this.
The Eurozone Composite flash PMI is expected to improve to around 56.0 and any upside surprise will help to support EUR.