Last week we saw the US Dollar significantly strengthen following the highly anticipated FOMC meeting. The market was focused on this meeting following the start of the central banks signposting of when we could see a move in monetary policy. As expected, the US Federal Reserve left interest rates, and its asset purchase target, unchanged whilst officials also reiterated a key message, that a tightening in monetary policy remains on the distant horizon and even when that starts policy will remain very accommodative. However, whilst the Federal Reserve’s guidance on the future path of monetary policy remains dovish, there were tweaks in a more hawkish direction. In addition, the ‘dot plot’ of Federal Reserve policymakers interest rate projections now points to two interest rate increases in 2023, up from none. The change in tone was enough to push the US Dollar through some significant psychological levels.

In the meantime, sentiment surrounding the UK has been mixed. The CPI inflation rate increased from 1.5% to 2.1% in May with the core rate (excluding food and fuel) also increasing to 2%. In addition, Chief Economist Haldane stated that the economy may be near pre-pandemic output levels. However, we also saw retail sales unexpectedly decline whilst concerns surrounding trade relations with the EU have intensified with Brexit Negotiator Frost stating that there was little headway in Northern Irish talks.

Economic data was quiet in Europe last week. However, the Institute for Economic Research cut the 2021 German GDP growth forecast from 3.7% to 3.3%. The cut was in large part due to supply bottlenecks and the increase of the inflation forecast to 2.6% before moderation to 1.9% next year.

Looking to the week ahead, the market will pay particular attention to FOMC Chair Powell to ensure it has interpreted the central banks messaging correctly as he speaks on Tuesday. The Purchasing managers’ index from the UK, Eurozone and US will provide the market with a good indication of the speed of the recovery. Following on from the FOMC last week, the Bank of England is to lay out its monetary policy with no change in rates expected. However, as we saw last week, it will be the messaging that will be of particular interest especially as some members have started to signpost their expectations on the time of a rate hike. Ongoing focus on the COVID-19 related news will continue to keep the market on its toes.


  • ECB President Lagarde Speaks

It is a quiet start to the week but with central banks and monetary policy coming under greater scrutiny, ECB President Lagarde’s speech will be closely monitored. Lagarde is due to testify at a virtual hearing before the European Parliament Economic and Monetary Affairs Committee. The market will keep a close eye on her rhetoric for clues of future policy.


  • Eurzone Consumer Confidence 
  • Fed Chair Powell Testifies

Following last week’s surprise tone change from the US central bank the market will be keen to watch his rhetoric for further clues and confirmation on sentiment from last week. Powell is due to testify on the Federal Reserve’s emergency lending programs and current policies before the House Select Subcommittee on the Coronavirus Crisis. In the meantime, Eurozone consumer confidence will be watched for clues on future economic activity.


  • PMI Services UK/EU and US
  • PMI Manufacturing UK/EU and US

Economic activity from the UK, Eurozone and US will be under the microscope today as the purchasing manager index for both the service and manufacturing sectors are due. The headline numbers are expected to show that both sectors are continuing to expand which is positive for the global economy. The market will be focusing on the pace of expansion and ultimately if these fit the current central bank growth forecasts.


  • German IFO
  • BoE Meeting
  • US Weekly Jobless Claims
  • US Durable Goods

With last week’s FOMC meeting putting the central bank back under the microscope, this time it is the Bank of England’s turn. The Bank of England is set to leave policy settings unchanged, including total asset purchases at £895bn and a Bank Rate at 0.1%. It will be the last MPC meeting for its most hawkish member, Chief Economist Andy Haldane, who is expected to dissent in favour of less bond addition of inflation will proceed. In addition to the German IFO business survey is also expected to show a further rise in the headline business climate index whilst the US weekly jobless claims and US durable goods reports are set for release.


  • UK CBI Realised Sales
  • US PCE Index
  • US UOM Consumer Confidence

Last week the UK retail sales showed a decline in sales on the month-on-month basis which whilst not completely unexpected following the easing of restrictions but this was still disappointing. The market will look to the CBI realised sales for further clues on the future trajectory of consumer sales. Inflation has been watched closely watched by the FOMC as treasury yields and the market continues to react and attempt to second guess the central bank’s intentions on monetary policy. In recent months inflation has soared. The PCE reading is the central bank’s preferred measure and therefore will be closely scrutinized for clues on future policy action.

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