Sterling’s rally against the US dollar continued modestly this morning as the pair is supported by both a weaker dollar and comments from Bank of England Governor Andrew Bailey, who stressed that the rapid economic recovery in the UK won’t unleash a damaging wave of inflation as the price increases will only be transitory. His comments came after April’s inflation figure printed double the expectations at 1.5%. Despite Bailey’s comments, the UK 10-year breakeven rate – which represents a measure of expected inflation derived from 10-year securities – sits close to its highest level since 2008. Like most days this week, today’s economic calendar is virtually blank for the UK, and focus turns to Bank of England’s Silvana Tenreyro at 17:00 BST who joined the Bank last year and has held a relatively dovish attitude since. Sterling will be further driven by broader market developments and general sentiment amid a UK bank holiday today.
With the US dollar weakening over the course of yesterday, this morning’s downward revision in Germany’s Q1 GDP did little to change the EURUSD course. On the contrary, the pair sharply surged soon after the release although domestic headlines or data had little to do with it, with the greenback falling against GBP as well. Later this morning at 09:00 BST, Germany will release data from the Ifo survey. The median of forecasts submitted to Bloomberg foresees an uptick in the current assessment and business climate of 101 and 98, respectively. Any upward surprises may give EURUSD an additional boost as this morning’s session has already seen the pair break through levels not seen since February. Later in the afternoon at 14:00 and 150:00 BST, focus turns to European Central Bank speakers François Villeroy de Galhau, Philip Lane for any cues ahead of the ECB’s June 10 meeting.
It’s been one-way traffic for the US dollar after the single currency got a boost from Friday’s positive PMI prints, with the DXY index having dipped over half a percentage point lower since this week’s open. While part of the move is merely a correction from Friday’s price action, yesterday Fed officials reminded markets that the Federal Reserve will steer clear of QE tapering. James Bullard told Yahoo Finance the time for taper talk will come in the months ahead, “but we’re not quite there yet”, while Raphael Bostic stated he doesn’t expect inflation to be enduring. Kansas City chief Esther George additionally stated that the Fed hasn’t discussed scaling back its purchases of mortgage-backed securities, but that will likely be a topic when the time comes. Given how light today’s session is on economic events, developments in risk sentiment will likely determine intraday flow.
After a tumultuous session with large swings yesterday, this morning’s price action was much calmer and saw the loonie continuing to enjoy the broad dollar weakness and maintained strength in oil markets. West Texas Intermediate prices have risen by over 3.5% since this week’s open while Brent oil prices rose by over 3.6%, although the bulk of the surges occurred in yesterday’s session when investors considered an early return of oil exporter Iran to international crude oil markets. Prices arguably steadied this morning as investors deemed the prospect of new Iranian supply to occur only later, as indirect negotiations between the United States and Iran are only set to resume later this week. The Canadian data dock is empty for today, leaving the loonie at the mercy of broader developments in risk sentiment and crude oil prices.