GBP

Sterling has come under strong pressure, losing all of yesterday’s gains against the dollar and over a cent against the euro after disappointing PMI surveys. Data showed the service sector activity weakened sharply in May, reviving recession fears and weighing heavily on the pound. Bank of England Governor Andrew Bailey hinted yesterday that the central bank could hike interest rates further to help combat runaway inflation. Speaking at the Austrian Central Bank’s annual economic conference Bailey said, “We have raised the official rate four times so far and have made clear that in order to bring inflation down to target we are prepared to do so again based on the assessment at each of our meetings”. Bailey added Policymakers can and must take the actions needed to return inflation to target over a period that avoids unnecessary volatility. Prime Minister Johnson was yesterday warned by his Dutch counterpart Mark Rutte to stick to Northern Ireland Brexit terms. Speaking at a joint news conference with Irish PM Michael Martin, Rutte said Boris Johnson and the UK know very well what action the European union could take if London fails to comply with the post-Brexit agreement it struck with the bloc on Northern Ireland.

EUR

The euro has been in demand this morning, after European Central Bank president said the euro area will leave the era of negative interest rates in the coming months as the single currency bloc has reached a “turning point” in monetary policy. Speaking in an interview at the World Economic Forum in Davos, Lagarde said she saw the ECB deposit rate at zero or “slightly above“ by the end of September, implying an increase of at least 50 basis points from its current level. Her comments come after Bloomberg reported yesterday, citing sources that some of the more “hawkish” ECB policymakers are annoyed at the rate-hike timeline outlined by Lagarde recently, given some had preferred a faster cycle.

USD

After falling nearly 1% yesterday, the dollar index has hit a fresh one month low on Tuesday. Against its basket of rivals, the greenback has fallen 0.3% in early trading to its lowest level since 23rd April. The major gainer today has been the euro, which is trading 0.4% higher in early London trading against the dollar after ECB president indicated negative interest rates in the euro zone, which has been a feature for eight years will likely be gone by the end of the third quarter. Preliminary readings of the US Manufacturing and Services PMI’s for May, as well as a speech by Federal Reserve bank head Jerome Powell will gain most market attention today.

Economic Calendar

14:45 USD S&P Global Composite PMI (May)
14:45 USD S&P Global Composite PMI (May)
14:45 USD S&P Global Composite PMI (May)
15:00 USD New Home Sales (MoM)(Apr)
17:20 USD Fed’s Chair Powell speech
19:00 EUR ECB’s President Lagarde speech