GBP

The pound has begun the week on the backfoot against the dollar, hurt as a risk averse market created demand for the greenback in far-east trading. The market mood turned sour when China reported poor economic data fuelling fears for the global economy. Against the euro, sterling remained steady. In the latest Brexit news, Prime Minister Boris Johnson said he wanted to resolve a standoff with the European Union over Northern Ireland’s post-Brexit trade rules, but he kept the option of unilateral action that the EU says could start a trade war. Yesterday, Ireland’s foreign secretary Simon Coveney urged Johnson not to introduce new trade laws that he said could undermine the peace process. Johnson is due to travel to Belfast today to urge local political leaders to form a new power-sharing government, a key institution under the 1998 Good Friday peace agreement. Bank of England Governor Andrew Bailey will today have to defend the central bank’s performance in curbing inflation that risks plunging the UK into recession. Bailey will appear before the Treasury Select Committee in the face of growing criticism of the central bank’s performance. Business Secretary Kwasi Kwarteng yesterday called into question his effectiveness at keeping the lid on inflation.

EUR

The euro is staying within a tight range against the dollar following last week’s decline. The souring market mood, following disappointing economic data from China, has prevented the single currency from gaining any momentum in early trading. The European Commission will later today release the economic growth forecasts for the bloc and could dictate the single currency’s short-term direction. European Central Bank Council member Francois Villeroy de Galhau told Reuters today that he expects a decisive policy meeting in June and an active summer. The Bank of France chief said they will monitor developments in the effective exchange rate as a significant driver of imported inflation, adding that a euro which is too weak would go against our price stability objective.

USD

The dollar benefitted as markets turned risk averse in early trading. Disappointing economic data releases from China heightened fears over a global economic slowdown and safe haven flows dominated the market. China’s data showed that retail sales contracted by 11.1% on a yearly basis in April, missing market expectations of a 6% decline by a wide margin. Additionally, industrial production narrowed by 2.9% in same period, in contrast to economist forecasts for a slight 0.4% increase. Meanwhile, Shanghai announced that covid restrictions will remain in place due to the high risk of a rebound in infections. Last month, the persistent spread of coronavirus and the resulting stay-home orders forced factories to close or operate at a limited capacity. On a day that is light in economic data, Federal Reserve bank member John Williams’ speech later today will gain market attention this afternoon.

Economic Calendar

10:00 EUR European Commission releases Economic Growth Forecasts
13:55 USD Fed Williams Speech
15:15 GBP BOE Monetary Policy Report Hearings