GBP

Sterling has begun the day pressurised by a broadly stronger dollar, which has found demand from risk averse sentiment. Against the euro, the pound is largely unchanged from Wednesday’s close. Yesterday, after the release of official data showing inflation reaching a 40-year high, Chancellor Rishi Sunak warned that easing the cost-of-living crisis for families will not be easy and the next few months will be tough. Sunak also reiterated a promise he made in March to cut business taxes later this year and encourage employers to do their bit to ease the economic pain for households by keeping up investment and innovation. Brexit news remains a major headwind for Sterling. On Wednesday Sinn Fein leader Mary Lou McDonald said the UK’s proposals to override some post-Brexit trade rules with Northern Ireland were “astonishing” and only serves to boost the party’s quest for a united Ireland, adding she believed a referendum on leaving the UK would happen in the next decade. Foreign Secretary Liz Truss said the government will shortly publish its legal position in lining up the new law to unilaterally ease the movement of goods.

EUR

The euro has failed to capitalise on a report by Market News International (MNI) that European Central Bank policymakers are ready to back at least two 25 basis point rate increases this year. The report citing Eurosystem sources said the majority of council members are prepared for two hikes this year, with some leaving the option for three, adding that while there are officials downplaying ECB policymaker Klaus Knot ‘s idea of a 50-basis point hike in July, such a possibility is also gaining traction among members of the governing council. This brings the minutes from the latest ECB meeting, due for release later today, firmly into focus with traders looking for clues for a potential timetable for monetary policy tightening. Following the release of the minutes, central bank Vice-President Luis De Guindos is due to speak.

USD

The news that Shanghai will allow more businesses in some areas to resume normal operations from the start of June has done little to stop the dollar rallying this morning. The greenback has found demand amid a return to safe haven flows after Wall Street’s main indexes suffered major losses on Wednesday. The S&P 500 index lost more than 4% and the tech-heavy Nasdaq composite Index fell 5% yesterday. Asian and European stocks have also tumbled today as investors fret globally over the broadening impact of inflation on economic growth. Recent CPI indexes for the EU, UK and Canada show inflation running at multi-year highs.

Economic Calendar

12:30 EUR ECB Monetary Policy Meeting accounts
13:30 USD Initial Jobless Claims
13:30 EUR ECB’s De Guindos Speech