GBP

The pound found some support this morning when UK retail sales unexpectedly jumped in April. The data released by the Office of National Statistics (ONS) showed retail sales volumes rising by 1.4% month-on-month last month, after a drop of 1.2% in March. Economists had been expecting a 0.2% monthly fall. However, the wider picture remained weak as sales in the three months to April fell 0.3%, after a 0.7% drop in March and it is thought it won’t be until May’s data that the result of the squeeze on households’ disposable income is seen feeding through to spending. Also released this morning was a survey that showed pessimism is weighing on Britain’s households at unprecedented levels as the cost-of-living crisis pushed confidence in the economic outlook to its lowest since records began in 1974. The GfK’s consumer confidence index dropped to -40 in May as the public felt nothing on the economic horizon showed any reason for optimism any time soon.

EUR

The euro has begun the day on a firm footing against the dollar, helped by the release of German inflation data. The Producer Price Index for Europe’s powerhouse showed prices rising strongly in April, driven by higher energy prices, to the biggest increase ever recorded. The index showed that prices rose 2.8% from the previous month and energy prices surged 87.3% annually. The minutes of the European Central bank’s last meeting released yesterday provided more evidence that a majority of policymakers have become increasingly concerned about the inflation outlook and it appears a July rate hike is all but certain, the only uncertainty being whether it is a 25-basis point hike of a 50-basis point hike. Later today, ECB Chief Economist Phillip Lane is due to speak, this is followed by the European Commission’s release of its consumer confidence survey for the bloc.

USD

The dollar is heading for its worst week since early February against its major peers on Friday, weighed down as concerns grow that the Federal Reserve Bank may have fallen behind the curve in combating inflation and will need to be ever more aggressive in tightening monetary policy which could hurt the economy and send the US into a recession as a result. Having hit its highest level since January 2003 last Friday, the dollar index, which measures the greenback against six major rivals, registered its largest one-day drop since early March yesterday, losing more than 1% on a daily basis and 1.5% on the week. Yesterday Minneapolis Federal Reserve Bank President Neel Kashkari fuelled fears of further aggressive hikes when he suggested that the Fed may end up needing to raise rates further to bring inflation under control.

Economic Calendar

13:00 EUR ECB’s Lane speech
15:00 EUR Consumer confidence (May)