Last week we saw another strong performance from Sterling with economic data strengthening its outlook. The labour market data showed a net decline in jobless claims with the unemployment rate also falling. Retail sales and economic activity data in the form of the purchasing managers’ index (PMI) were optimistic. Retail sale volumes surged by 9.2% compared with the consensus forecasts of 4.5% while the composite PMI for May showed its highest level on record. However, concerns started to emerge surrounding the Indian variant as it was believed it could hinder further relaxation of COVID-19 restrictions.

The single currency remained at the forefront as optimism surrounding the EU vaccination programme provided net currency support. This was further supported as ratings agency, Moody’s expressed optimism that the EU recovery fund would support Southern Europe which helped underpin underlying Euro confidence. However, ECB Chief Economist Lane stated that price increases due to bottlenecks is not real inflation. Lane went on to say that the central bank still has a lot to do to create an organic inflationary environment via policy.

The US Dollar capped its losses as Federal Reserve Vice Chairman Clarida stated that the central bank must be attuned and responsive to incoming results to guarantee that inflation is transitory before adding that the Federal Reserve would only act if the data threatened to increase inflation expectations. However, the Minutes from May’s Federal Reserve meeting stated that there was still a long way to go to meet the central bank’s goals. Several members stated that a discussion of tapering might be appropriate at some point during upcoming meetings if the economy continues to make rapid progress towards the committee’s goals.

Looking to the week ahead, the global economic calendar is less busy, but different views on the risks for the inflation outlook could maintain a degree of volatility in financial markets. There are also concerns about new COVID-19 variants and rising cases in various countries across the globe. Here in the UK, the government is keeping a very close eye on rising cases of the Indian variant, which could hinder the final stage of reducing restrictions. Data of particular focus will be the German IFO figures which will provide the market with an indicator of confidence following the more positive news of the vaccine rollout. US inflation is due to hit the wires on Friday which could be a key element for the FOMC outlook.


  • BoE Gov Baily Speaks

As always, the market will keep a close eye on BoE Gov Baily as he, along with other Monetary Policy Committee members reports on the Bank of England Monetary Policy before the Treasury Select Committee. If we see anything unscripted from the tone previously expressed, we could see some increased volatility.


  • UK Public Sector Borrowing
  • GER IFO Business Confidence
  • US Consumer Confidence

With the ramp-up of the vaccine rollout in Germany, the market will be keen to articulate how confidence levels have improved as a result. If elevated, it could provide further strength to the single currency. Economic data from the US has become slightly erratic following the release of the disappointing non-farm payrolls at the beginning of the month. Today the market will keep a close eye on consumer confidence figures.


  • FOMC Member Charles Speaks

It is a quiet day today with only FOMC member Charles speaking. The market will keep an eye on his tone for clues on future policy action that continues to remain the focus for the market.


  • US GDP
  • US Initial Claims
  • US Durable Goods

The focus will be on US data today with key metrics for growth. The is no change expected in the second reading of the US GDP from the first reading of 6.4%. The jobless claims remain in focus following the outlook of the non-farm payroll at the beginning of the month. Jobless claims have been sliding and this trend is expected to continue. The durable goods from the US may have been seen as a good barometer of growth as this focuses on big-ticket items that have a life expectancy of at least 3 years. We are expecting to see this figure continue to rise, albeit at a slightly slower pace.


  • US Personal Consumption Expenditures (PCE)
  • US UoM Consumer Sentiment Figures

The focus will be on the April PCE deflator, which is the Federal Reserve’s preferred inflation measure, especially after the surge in the CPI measure. Headline PCE inflation is forecast to rise from 2.3% to 3.5% which could adjust the interest rate outlook should the figure exceed or miss the expected rate. Following this, there will be another view of consumer sentiment.

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