Sterling pushes higher as the first signs of monetary policy normalisation has begun. BoE member Vlieghe stated that the first rise in the bank’s rate is likely to become more appropriate during the course of next year, with some modest further tightening to follow. He went on to advise that it will probably take until Q1 of 2022 to have a clear view of the post-furlough unemployment and wage dynamics, so a rise in the bank rate could be appropriate soon after. Providing this signal has given the Sterling a lift despite various challenges that it currently faces. Earlier in the week, BoE Governor Bailey acknowledged that the economic recovery in the UK is “quite unbalanced” and “the risk of high inflation expectations becoming entrenched is not our central view”. However, there were some concerns that consumer spending could be losing momentum as the CBI retail sales index edged lower. In the meantime, concerns surrounding the Indian variant remain and could potentially hinder the final stage of unlocking on the 21st of June.

In Europe, conditions continue to improve as vaccination rates pick up. To put this into perspective, at the beginning of May the EU have vaccinated 24% of the population and by the end of the month, the rate had increased to circa 38%. The German IFO business confidence index strengthened to a 2-year high. The current assessment and expectations index strengthened to levels above forecast. The IFO stated that economic recovery is gathering pace with a strong boost in expectations surrounding tourism and hospitality.

The Richmond Federal manufacturing index strengthened marginally from 17 to 18 with a slightly faster rate of growth in new orders for the month. Federal Reserve Vice Chair Clarida commented that the markets seem to understand the Federal Reserve’s new strategy and he expected inflation to remain well-anchored. He added that there could be a time in upcoming meetings when the Federal Reserve can discuss scaling back bond purchases.

In the week ahead the market focus will be on two main factors, the US employment data with the Non-Farms Payrolls taking centre stage on Friday. This follows last month’s reading where expectations were close to a million new jobs with only 266k being filled. This employment data has larger implications on the wider economy. In the meantime, the market will pay close attention to the rhetoric coming out from BoE officials following interest rate comments.


  • UK/EZ and US PMI Manufacturing
  • EZ Consumer Price Index
  • BoE Gov Baily Speaks

The UK, Eurozone, and the US second (final) manufacturing reading are due for release with no major changes expected. In the meantime, the main focus will be on the headline inflation reading from the Eurozone. Inflation is expected to rise to 1.9%, just shy of forecasted targets. There will be a lot of focus on the speech from BoE Gov Baily following the signposting from member Vlieghe regarding the normalisation of monetary policy. Baily is due to deliver a speech titled “Building a Finance System Fit for a Clean, Resilient and Just Future” at an online event hosted by Reuters.


  • UK Mortgage Approvals
  • US Beige Book

It is a quieter day today with only the UK mortgage approvals and the US beige book hitting the wires. The mortgage approvals will be closely monitored for signs of momentum following the stamp duty extension holiday. The US beige book is due for release which looks anecdotal with evidence supplied by the 12 Federal Reserve banks regarding local economic conditions.


  • UK/EZ and US PMI Services
  • US ADP Employment Report
  • US Weekly Jobless Claims
  • BoE Gov Baily Speaks

The UK, Eurozone, and US second (final) services reading are due for release with no major changes due, but it will be closely watched. The ADP employment report will give the market some insight ahead of the all-important US labour report. The headline figure is expected to show circa 650k new jobs. Combined with this reading is the US weekly jobless claims. There will be a lot of focus on the speech from BoE Governor Baily following the signposting from member Vlieghe regarding the normalisation of monetary policy. Baily is due to deliver a speech titled “How in Practice can the Financial Sector take Immediate Action Against Climate Change-Related Risks”. This will be delivered virtually.


  • UK PMI Construction
  • EU Retail Sales
  • US Non-Farms Payrolls
  • ECB President Lagarde and FOMC Chair Powell speak

The monthly US labour market report is almost always closely watched by markets as a key bellwether of US economic conditions. Last month’s April update reported a much lower-than-expected monthly employment rise and an unexpected increase in the unemployment rate. However, economic indicators have suggested that employment gains have been solid, and the market is expecting a figure close to 650k; another big miss could dent interest rate expectations. ECB President Lagarde and FOMC Chair Powell are both due to speak in a panel discussion titled “Central Banks and Climate Change: How to Manage Expectations, Balance Actions and Communication and Contribute to Coordinate with Other Important Actors?”

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