Pound Sterling

Pound Skyrockets, USD Bolstered by Soaring Inflation

The Pound benefited from a notable relief rally this week, as any immediate fears of a Scottish independence referendum were eased by the SNP’s failure to secure a majority in last week’s election.

At the same time, a stronger-than-expected jump in US inflation propelled the US Dollar higher this week.

Pound Surges as Political Uncertainty Eases

GBP/EUR – Up one cent on the week’s opening levels

GBP/USD – Up one cent on the week’s opening levels

The Pound had a flying start this week amid relief that the Scottish National Party (SNP) failed to secure an outright majority in last week’s elections, while the confirmation that more of the UK economy would reopen on 17 May also boosted Sterling.

This upside in GBP exchange rates later began to fade however, after Boris Johnson warned that the new Indian variant of the coronavirus is of ‘concern’.

Looking ahead, it’s set to be a busy session for GBP investors next week, with a slew of high-impact UK data releases, potentially the most impactful of which will be Wednesday’s CPI figures, where a sharp acceleration of inflation could bolster Sterling sentiment.

Euro Undermined by USD Strength

EUR/GBP – Down one pence on the week’s opening levels

EUR/USD – Unchanged on the week’s opening levels

The Euro was mostly rangebound through the first half of this week, with some confusion over the European Central Bank’s (ECB) future policy plans offsetting a sharp jump in German economic sentiment.

The single currency then faced an aggressive selloff in the latter half of the week as its negative correlation with the US Dollar left it weakened as USD exchange rates surged.

The Eurozone’s latest PMIs will be in the spotlight for EUR investors next week, with the Euro potentially finding some support if economic activity in the bloc continued to accelerate in May.

US Dollar Rallies amid Soaring Inflation

USD/GBP – Unchanged on the week’s opening levels

USD/EUR – Unchanged on the week’s opening levels

After spending the first half of the week on the defensive in the wake of the previous week’s dire payroll reading, the US Dollar received a shot in the arm when the US consumer price index revealed US inflation skyrocketed to a dizzying 4.2% in April, prompting USD investors to revise their expectations for the next Federal Reserve rate hike.

However the US Dollar gave some ground again at the very end of the session after a weaker-than-expected retail sales print.

Turning to next week’s session, USD investors will be looking out for any comments from Fed policymakers that suggest the bank may need to rethink its belief that the rise in inflation will be ‘transitory’.

Australian Dollar Stumbles as Risk Appetite Weakens

AUD/GBP – Down one pence on the week’s opening levels

AUD/USD – Down one cent the week’s opening levels

The Australian Dollar opened this week’s session on strong footing due to a buoyant market mood and a sharper-than-expected rise in domestic business morale bolstering AUD exchange rates.

However, the ‘Aussie’ then ran into some headwinds as the week went on, with investors shunning the risk-sensitive currency as a risk-off mood prevailed.

The primary focus for AUD investors next week will be Australia’s latest jobs report, which could give the ‘Aussie’ a boost if the unemployment rate continued to fall last month.

Key Data

May 18 AUD RBA Minutes

May 18 GBP Unemployment Rate (Mar)

May 18 EUR GDP (Q1)

May 19 AUD Wage Price Index (Q1)

May 19 GBP Inflation Rate (Apr)

May 19 USD FOMC Minutes

May 20 AUD Unemployment Rate (Apr)

May 20 USD Initial Jobless Claims (15/May)

May 21 EUR Manufacturing PMI (May)

May 21 EUR Services PMI (May)

May 21 GBP Services PMI (May)

May 21 USD Services PMI (May)