Weekly currency news: euro picks up with all eyes on the ECB
The euro advanced last week after seven consecutive weeks of decline, buoyed by investors’ speculation that the ECB might signal the exit of its bonds purchasing program at next Thursday’s monetary policy meeting, and easing political concerns about Italy.
At the same time, the US dollar lost steam after a six-weeks’ rally and retreated from six-month lows against a basket of the most-traded currencies. In the UK, sterling’s attempts to recovery remain weighed by the disagreements with the UE in the Brexit negotiations.
This week’s calendar is dotted with relevant events; mainly the monetary policy decisions by the Federal Reserve, the European Central Bank and the Bank of Japan, but also the inflation in the US, the UK and the Eurozone.
Currencies last week
- EUR/USD recovery extends to 1.1800
- GBP/USD trims losses and returns to 1.3400 area
- EUR/GBP sideways movement below 0.8800.
- USD/JPY: recovery stalls below 110.00
Main events this week:
The US calendar opens on Tuesday with May’s Consumer Prices Index. After having recorded a weaker than expected inflation in April, the dollar would need strong CPI figures to put pressure on the Fed to accelerate their monetary tightening pace.
On Wednesday, the Fed’s monetary policy meeting is widely expected to deliver the second interest rate hike of this year. Investors, thus, will be focusing in the ensuing conference, to assess the bank’s tightening calendar. With three hikes already priced in for 2018, the market might react punishing the dollar if the bank does not show intentions to accelerate its rate hike path.
On Thursday the US retail sales are expected to show a slight increase in May. Consumption is an important contributor of the US GDP and therefore, strong retail sales figures tend to be dollar supportive.
On Thursday, the ECB’s monetary policy decision will attract the attention. According to market speculation, the bank could be pointing out to December as the final deadline for its QE program. If those expectations are confirmed, the change of the bank’s forward guidance might trigger a relevant appreciation in the euro.
On Friday, the Eurozone Consumer Prices Index is expected to confirm that inflation advanced significantly in May, although the core CPI remains well below the 2% ECB target rate and, therefore, the impact on the euro is likely to be limited.
On Monday, the UK calendar will open with the manufacturing and industrial production figures. A string of soft macroeconomic indicators in the first quarter has raised concerns about the strength of UK economy. In this context, the pound would need clear signals of strengthening in the Q2 to regain investors’ confidence.
On Tuesday National Statistics will release the ILO unemployment and the average earnings of the three months previous to April, which might have a moderate impact on the pound.
On Wednesday, investors will be attentive to the UK Consumer Prices Index. Inflation has been retreating over the last months, which has hindered BoE’s monetary tightening plans and weighs on the pound. In that sense, another decline on the CPI might add negative pressures on the pound.
In the Japanese calendar, the main event will be the Bank of Japan’s monetary policy decision. With the economy showing signs of improvement, the investors will be eager to know whether the bank is contemplating any kind of monetary tightening in the mid-term. Any comment in that direction would be yen supportive.