UK economy under pressure

GBP

The Pound came under pressure in the previous session amid growing concerns over the health of the UK economy. UK construction activity slowed to 56.4 in May, down from 58.2 in April, marking the lowest reading since January. Delving deeper into the figures, they revealed that the construction of new homes almost stalled as builders feared that the cost of living squeeze and rising interest rates would choke demand.

Separately the OECD warned about the economic outlook for the UK. The Paris-based organization expects UK economic growth to stall in 2023 as inflation is expected to keep rising. Under those conditions, the BoE could struggle to raise interest rates without sending the UK economy into recession.

With the long term outlook on the UK economy looking very volatile with record high inflation, decrease in house buying interests, political uncertainty & talks of a recession analysts believe the pound will remain under pressure despite the BOE having raised INT rates to tackle these issues, investors will seek to move into more stable currencies like the dollar and with the ECB raising rates this will boost investor confidence in the Euro.

The Pound Euro exchange rate is falling on Thursday, extending losses for a second day below 1.17, Euro sellers should be taking advantage of these levels.

There is no high impacting UK economic data due to be released today.

EUR

The euro rushed higher in the period after stronger than expected economic data. Data released revealed that the Eurozone economy grew at a faster pace than expected in the first three months of the year. GDP was upwardly revised to 0.6% quarter on quarter, upwardly revised from 0.3% as the preliminary reading and also up from 0.2% in the final quarter of 2021. On an annual basis, GDP was upwardly revised to 5.4% from 5.1%, according to Eurostat figures.

EUR/USD volatility yesterday – The European Central Bank was behind the pair’s volatility after announcing its monetary policy decision. As expected, there were no changes in rates, but Lagarde & Co. reaffirmed their commitment to raise rates in July, although they anticipated a 25 bps move. Investors were hoping for a 50 bps hike amid inflationary pressures. More hikes are likely in the near future, although the scale of each increment would depend on the medium-term inflation outlook.

Indeed, the central bank upwardly revised the annual inflation forecast, now seen at 6.8% for this year, then decreasing to 3.5% in 2023 and to 2.1% in 2024. Growth, on the other hand, has been slashed to 2.8% in 2022 and to 2.1% for the next two years. We are most likely to see a 25bps increase in July from the ECB.

ECB President Christine Lagarde said that inflationary pressures have broadened and remain undesirably high, which is a major challenge, adding that price pressures are becoming more widespread across sectors. She also said that wage growth has started to pick up but also that the war in Ukraine is a big downside risk to economic growth.

USD

Economic data – the White House warned on Wednesday that the government expects inflation numbers to be elevated.

Monthly budget is expected to be a negative figure indicating bearish government debt which could potentially have a negative impact to the dollar.

Economic calendar

USD – CPI (MoM) (May)
USD – CPI (YoY) (May)
USD – CPI Core (May)
USD – CPI Food & Energy (MoM) (May)
USD – CPI Food & Energy (YoY) (May)
USD – CPI N.S.A (MoM) (May)
USD – Monthly Budget Statement (May)