USD perks up against EUR

With interest rates and market expectation still driving GBP strength, we’ve seen the pound hit 5 year highs against the dollar and 16 month highs against the euro off the back of an anticipated interest rate hike early next year. There is always the sinister concern, though, that if data swings the other way then we will see a sharp drop off for the pound. Last week, we saw news from the BoE that, despite the UK economy looking up, it will only raise interest rates next year. This promoted the pound’s fall to a one month low against the dollar. We also heard BoE Governor, Mark Carney, saw this weekend that one of the risks to the UK’s economy is the UK’s ballooning housing market where the value of mortgage loans to property values was “creeping up” – the BoE then might look to rein in lending later in the year. With little data out of the UK today, what we have to look forward to CPI data tomorrow, retail sales on Wednesday, and government borrowing numbers on Thursday.

With the euro developing something of a limp last week, we saw the single currency dip across the board following poor data. Next month we may see the ECB reduce interest rates further to stimulate growth. Germany now also seems on board with the ECB’s plan to potentially use non-standard easing measures which they were opposed to up until now. According to a report yesterday, the ECB now seem poised to launch a €200Bn stimulus programme in June which will also include measure such as negative deposit rates and measure to boost lending to smaller companies. There is some concern, however, over the condition of the banks in the Eurozone and how they will fair under new stress testing. There isn’t much out of the Eurozone in terms of data this week but we will see services and manufacturing PMI out on Wednesday as well as German IFO data.

USD saw positivity for most of last week, aided somewhat by poor data and uncertainty from the Eurozone, then rising to a 6 week high against the single currency as EUR softened following weak growth numbers and inflation speculation. In terms of data, retail sales remained fairly unchanged (having risen 1.5% in March, the biggest jump in 4 years), while wholesale prices jumped in April by the most in over a year. PPI increased by 0.6% - the biggest increase since Sep 2012. This all seems part of uptick for the US following a slow start to the year after all they bad weather they endured. No significant data out today but we will see Fed minutes out on Wednesday and home sales data our on Thursday and Friday.