GBP

Sterling remains under pressure against the dollar but has made some gains against the euro, which has been sold more aggressively over recent sessions versus the greenback than the pound. The latest setback for sterling was yesterday’s GDP data which showed the economy losing momentum, highlighting the risks of a recession over the coming months. Commenting after the data’s release, Bank of England Deputy governor David Ramsden said the central bank will have to push borrowing costs higher to control fast-rising inflation but its four interest rate hikes since December are already having an impact on the economy, thus reminding the market of the dangers of “stagflation “. Brexit concerns are also weighing on the pound and yesterday, following talks with European Brexit negotiator Maros Sefcovic, Foreign Secretary Liz Truss warned that Britain might have no choice but to act unless the bloc was more flexible in talks over trade rules for Northern Ireland. In response, Sefcovic said the possibility of Britain acting unilaterally was “of serious concern” and any move to scrap the agreement would be “unacceptable”. Sefcovic said the EU had offered a range of solutions to break the standoff and that there was “still potential to be explored in our proposals, we are still awaiting the response from the UK side”. On a day light of data, sterling could be susceptible to further negative Brexit headlines.

EUR

The euro has made some moderate gains in early trading, recovering from the 5-year low it hit yesterday against the dollar. Hawkish comments from Irish Central Bank Governor Gabriel Makhlouf who joined a chorus of recent policymakers who have raised expectation that the central bank will raise interest rates in July, did little to support the single currency. This morning, Consumer Price indexes for France and Spain showed inflation running at 5.4% and 8.3% respectively, slightly better than analysts’ expectations. The next focus of market attention will be Industrial production figures for the bloc released later this morning.

USD

Having reached its highest close in two decades yesterday, the dollar index is edging lower in early trading amid improving market mood. Sentiment increased after Shanghai’s deputy major published a statement saying the city aims to reach zero-covid infections at the community level by mid-May, aiming to open shops in an orderly manner and ease traffic restrictions. Support for the dollar yesterday was underpinned by Federal Reserve chairman Jerome Powell, who repeated his expectation that the central bank will raise rates by 0.5% at each of its next two policy meetings, while pledging if data turned the wrong way “we’re prepared to do more“. The major data release of day will be the monthly Michigan Consumer Sentiment Index.

Economic Calendar
10.00 EUR Industrial Production (MoM) (Mar)
13.30 USD Michigan Consumer Sentiment Index (May)