Strong Retail Sales gave the greenback rampant momentum on Friday afternoon which led it to top the G10 currency for the day and added to the gains USD made earlier in the week. May’s Retail Sales figures missed the expected 0.6% mark by a narrow margin at 0.5%, but the real punch was hidden in the April revisions. Headline Retail Sales were lifted by 0.5%, while the Core April reading was adjusted to 0.6%, showing that fears for a consumer-spending slowdown after the weaker Q1 figures were overdone. This then directly provides a challenge to market pricing of a Federal Reserve rate cut on Wednesday this week. Such a cut would indeed be warranted if the US economy were to be heading towards a recession, but at least this print from the consumer section of the economy begs to question the assumption the US economy is heading for the cliffs. On Friday, data did show that Chinese Industrial Output grew by the slowest pace since 2002, which likely indicates the trade war is impacting China which can then drag on US growth as well. However, we argue that the link between the resilience of domestic consumer spending and the strength of the US economy is stronger than the link between US economic performance and Chinese business activity. This will make the Fed more vigilant about external risks this Wednesday, but a domestic economy that remains healthy should be sufficient for the Jerome Powell and his colleagues to remain their patient stance for the time being. However, revisions will likely be made to forward guidance measures following dovish statements from Fed members. Merely signalling a shift towards more accommodative monetary policy by the Fed may be taking as hawkish due to the aggressive pricing of rate cuts by markets.


Sterling lines up for a pivotal week as the race for number 10 heats up. Over the weekend the usual grandstanding occurred with all candidates, except Boris Johnson, attending a TV debate on Sunday evening. The event was most successful for up-and-coming nominee Rory Stewart, who now sits as the second favourite according to bookmakers to become the Tory party leader behind Johnson. Speaking of the former Foreign Minister, Boris’ campaign encountered another major boost as Matt Hancock, who was edged out in last week’s preliminary round, voiced his support in favour of the bookies favourite following a long talk with all candidates. The race is seemingly becoming a foregone conclusion, with Johnson taking the reins for the Eurosceptic faction of the Tory party, while the Europhiles are yet to rally behind one candidate. That is set to change this week, however, as the final two candidates will be revealed. Today, all candidates have been invited to hold hustings in Westminster in front of up to 100 journalists with all potential leaders confirming their attendance apart from Boris. Tomorrow, the second round of voting begins with MP’s taking to the ballot boxes between 15:00 and 17:00 BST with the result expected around 18:00. A further round of voting will take place at similar times on Wednesday, with two follow up rounds if needed on Thursday morning and afternoon. Should all stages be required to whittle the field down to two candidates, the results will be announced Thursday evening around 18:00. This would allow the final two nominees a full month of hustings before the vote is put towards some 160,000 Conservative party members to choose their leader on the week of July 22nd. Elsewhere for the pound this week the data calendar is plentiful, but will likely be rendered useless due to the political headlines. On Wednesday, May’s Consumer Price Index inflation report is released along with the producer variation too, Retail Sales are released on Thursday morning while the Bank of England discusses interest rates Thursday afternoon.


The euro suffered substantial losses on Friday as the dollar took many victims following a fresh batch of Retail Sales data. The data calendar this week hosts a plethora of soft data releases which begin to seep into the market tomorrow with April’s trade balance and May’s inflation data. Meanwhile, the ZEW survey results for Germany are released at 10:00 BST. This week attention will squarely focus on the European Central Bank’s annual central banking conference in the Portuguese town of Sintra. The conference is opened tonight with a speech of ECB President Mario Draghi at 18:00 BST and offers several panels with a plethora of central bankers from all around the developed world. The conference ends with a concluding speech by Draghi on Wednesday evening. Markets will be looking for hints whether the ECB will follow the dovish shift of the Federal Reserve and potentially even start lowering interest rates even deeper into negative rate territory. On Thursday the ECB then publishes the latest economic bulletin and June’s preliminary Purchasing Manager Indices are reported on Friday.


USDCAD rallied substantially following last week’s US Retail Sales and with oil markets in flux ahead of next week’s OPEC meeting the loonie will look towards the Federal Reserve meeting on Wednesday and this week’s packed data calendar for some guidance. This week sees the Consumer Price Index for May released on Wednesday and April’s Retail Sales released on Friday. Headline inflation rose to the Bank of Canada’s target for the first time since October back in April and is expected to rise to 2.1% in May.