GBP

Sterling strengthened against the US dollar on Monday as global risk sentiment improved. Equity market rose as an easing of covid-19 restrictions in China boosted commodity prices.

However inflation continues to surge in major economies and printed in line with expectations at 9.1%, up 0.1% from April. Higher-than-expected inflation readings, at a time when members of the Bank of England have seemed hesitant to hike interest rates at the same pace as the Federal Reserve, can have a negative effect on the pound as it worsens the cost of living. The BoE are still embracing the 2% interest rate target over the next two years, however if we continue to see rate hikes this will only increase the likelihood of a recession.

On Friday we saw disappointing UK retail sales data coming in at -4.7%, while market expectations of a 4.5% contraction were already anticipated. Markets currently expect the UK to experience a significant economic slowdown, and Sterling to come under pressure in response as rising prices curb consumer activity adding to lower consumer confidence.

Key announcements

19:30 – EUR – ECB President Lagarde’s speech
20:00 – EUR – ECB Schnable’s speech