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May 2016

Sterling slightly falling off

Published: Friday 20 May 2016

  • Sterling slightly falling off
  • Fed official Dudley hawkish over June meeting
  • Canadian inflation figures this afternoon 
Sterling's rally continued Thursday morning with the release of UK retail sales – April sales were 1.3% higher than in the previous month according to the Office for National Statistics. Analysts were quick to point out the imbalances in the UK economy; with consumer spending the only bright spot in an otherwise gloomy economic picture (manufacturing, industrial and service sectors are reporting slowing activity). The Pound was bid on the news which saw it hit a high of 1.4660 on GBPUSD and 1.3070 on GBPEUR. Profit taking has seen the Pound pull back from the highs now and with the lack of UK data releases today, the Pound will likely struggle to maintain the upside potential.
The Dollar remained well bid against most majors as New York Fed president Dudley added to other Fed presidents’ comments earlier in the week. He said that a rate hike in June-July was a reasonable expectation – as long as forthcoming US data continues to show an improving picture. As it stands the next Fed meeting takes place a week before the EU referendum and policy makers may be unwilling to risk a rate hike until the outcome of the vote is decided.  
Over in the Eurozone, we saw the minutes released from the April 21st meeting. The ECB were concerned about the fall in inflation and whilst growth was moderate, they reiterated that “risks to the growth outlook were still tilted to the downside”. The Euro has struggled to make any significant gains above 1.14-1.15 over the course of the last 18 months and this week finds itself down at 2 months low against the USD and GBP.
There’s not much in the way of tier 1 data releases today, the main events will be Canadian inflation data and retail sales which will be a prelude to next week’s Bank of Canada interest rate meeting. Whilst the wildfires in Alberta have caused the shutdown of key oil production facilities, the short term effect it will have on the economy will likely be discounted by the central bank – analysts expect that interest rates will be maintained at the current level until the middle of next year.

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
GBP 11:00 UK: CBI Industrial order expectations -11 -13
CAD 13:30 Canada: Core CPI m/m 0.7 0.1
CAD 13:30 Canada: Core retail sales m/m 0.6 0.4
USD 15:00 US: Existing home sales 5.33 5.40

Daily Currency Insight by Alastair Sweetman

Daily Currency Analysis with William Busby

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