GBP

Sterling has been supported in early trading, rising nearly a cent against the dollar and around half a cent against the euro since far east markets opened. The pound has built on Friday’s momentum when retail sales unexpectedly rose by 1.4% month on month in April after a 1.2% drop in March. The pound was also underpinned by comments from the Bank of England’s Chief Economist Huw Pill who said that in his view the central bank still has some way to go in monetary policy tightening. In a speech to the Association of Chartered Certified Accountants in Wales, Pill suggested the current cost of living crisis is the biggest problem the Monetary Policy Committee has faced since the Bank of England became independent 25 years ago, even greater that the banking crisis of 2008. Markets will now be keenly focused on Governor Andrew Bailey’s speech at the Austrian National Bank’s annual economic conference in Vienna where he will speak on the subject “monetary policy, policy interaction and inflation in a post-pandemic world with severe geopolitical tensions”.

EUR

The euro is consolidating gains made against a broadly weaker dollar in early trading. The single currency has recently found support as policymakers have hinted towards a July rate hike. Yesterday, Bloomberg reported that the European Central Bank President Christine Lagarde said the first increase in interest rates in more than decade may come in July, but she downplayed the idea of a 0.5% hike amid concerns about economic expansion. Her comments follow those by Dutch Central Bank Chief Klaas Knott, who said a 50-basis point rise should not be ruled out. Upbeat German data also helped the euro this morning. The IFO current assessment index which is closely watched as an early indicator of current conditions and business expectations for the next six months improved to 99.5 in May from 97.2%.

USD

Having registered weekly losses for the first time since early March last week, the dollar index remains on the back foot in early trading with the greenback struggling to find demand amid risk-positive sentiment. The dollar’s rivals found demand when US President Joe Biden while speaking in Tokyo this morning, reiterated recent comments that the US were considering reducing tariffs on China in a bid to reduce inflationary pressures and that a recession was “not inevitable”. Optimism around China, with Shanghai edging out of lockdown and the central bank cutting interest rates, has also lessened dollar demand.

Economic Calendar

13:30 USD Chicago Fed National Activity Index
17:15 GBP BOE’s Bailey Speech