UK inflation data to drive pound movement this week

The US non-farm payrolls report showed that the US added fewer-than-forecast positions.

The pound surged across the board as investors responded to the news that the Conservative Party secured enough seats to govern the country alone – alleviating fears of a hung parliament and potentially drawn-out negotiations. After a tense 24 hours of vote collecting and counting, the result was announced and sterling was able to enter the weekend trading in a stronger position against peers like the euro, US dollar and Australian dollar.

Meanwhile, the US dollar drifted lower amid speculation that the slightly soft NFP number would prevent the Federal Reserve from hiking interest rates this summer. The euro came under pressure as a result of concerns that Greece would default on its next payment to the International Monetary Fund.

However, Greece actually made the payment early, buoying the euro in the process. The EUR/GBP and EUR/USD pairings recorded additional gains as ecostats for the Eurozone (including French GDP and the German consumer price index) showed improvement.

The pound’s run of gains against the euro was also ended by the Bank of England’s inflation report, in which the central bank chose to cut its growth projections for both this year and the year ahead. The GBP/USD exchange rate continued trending in the region of a five-month high as US advance retail sales failed to show the increase in consumer spending expected by economists.

This week, the main cause of GBP exchange rate movement is likely to be the UK’s consumer price index for April. Acceleration in inflation would be GBP-supportive, but if the CPI moves into negative territory, the pound could give up more of its election-inspired gains.

The Eurozone’s own inflation data, and the influential ZEW economic sentiment reports, will be driving the euro  – although the Greek bailout negotiations will continue to have a notable impact on sentiment towards the common currency. If it appears that Greece won’t be reaching an agreement with its creditors before running out of funds, the euro could fall.

The week will end with the publication of the US consumer price index. Annual inflation in the US came in at – 0.1 percent in March and economists are expecting it to dip to – 0.2 percent in April. A lower figure than this would send the ‘Greenback’ spiralling down against both the pound and euro before the weekend. 

Contributed by TorFX

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