Sterling strengthens on BoE outlook
The Pound started out constrained to narrow ranges as markets looked for reasons to drive direction. Bank of England member Gertan Vlieghe commented that the Bank’s projection is that the first interest rate hike is likely to become appropriate only well into next year, with some modest increases after that. Mr Vlieghe also alluded to a rate hike appearing earlier in the first quarter of 2022, but that would require a stronger than forecast labour market and for supply pressures to increase. For balance he also noted the potential for downside risks to the economy in which case further stimulus could still be required.
Naturally the markets centered on the “blue sky” scenario and Sterling posted strong gains with a move to highs just above 1.4200 to the US Dollar and the Euro retreated to the 1.1630 area. Boris Johnson expressed concern for the increase in Indian coronavirus variant cases and a possible delay to the next easing of restrictions on June 21st.
Month end position adjustment could well be a feature in today’s trading, especially with a UK bank holiday on Monday.
US durable goods orders declined 1.3% for April compared with expectations of a 0.7% increase, but underlying orders increased 1.0% for the month after a 3.2% increase the previous month. First-quarter GDP was unrevised at 6.4% with a 4.3% increase in the GDP prices index.
Initial jobless claims declined to a 13-month low of 406,000 in the latest week from a revised 444,000 the previous week and below consensus forecasts of 425,000. Continuing claims also declined to 3.64mn from 3.74mn on the week while there was a small decline in pandemic claims for the week.
Pending home sales declined 4.4% in April following a 1.7% increase the previous month with further supply-side issues. The dollar continued to gain some respite, but the Euro was resilient amid recovery expectations and the Euro settled close to 1.2200 with narrow ranges prevailing.
The dollar overall gained limited net support from the data releases, although underlying support was still fragile. The core PCE prices index will be watched closely today for further evidence on underlying inflation trends.
The Euro remains inside a tight range near intraday lows, around the 1.2180 against the Dollar as we begin the last trading session of the week. In doing so, the currency pair continues to straddle weekly lows, marked the previous day, mainly on the US dollar rebound ahead of the key inflation figures and budget announcements.
Data to watch
13:30 – USD – Core PCE Price Index
14:45 – USD – Chicago PMI