The US dollar’s outperformance of the pound has continued despite the recent run of better UK data, and that trend is likely to continue today. UK housing had further confirmation of growth this morning from the Rightmove survey, showing new record asking prices nationally. The rest of the week has plenty to focus on with CPI inflation, Bank of England MPC minutes, retail sales and the first revision of Q1 GDP released. The minutes of the monetary policy committee will likely draw the greatest attention after the more upbeat quarterly inflation report, with the market looking for signs of a shift away from further quantitative easing which would be sterling supportive.
Again the broad strength of the US dollar saw EUR/USD dip below the 1.28 level, though we have since seen a slow grind back up to 1.2850. The euro continues to look vulnerable to further weakness and this could be the case for the first part of the week before US data on Wednesday, with 1.2750 the next major support. Later this week market attention will likely turn to the forward-looking data releases from the eurozone with May PMI and German IFO and German GDP along with the May EU summit later this week. Nothing exceptional is anticipated from the EU Summit, though there will be discussions on the disagreement between Germany and other core countries on austerity.
The US dollar index made new highs on Friday afternoon, trading to the highest level since mid-2010. The recent US dollar strength has been partly due to speculation about Fed normalisation of rates. There will be increased focus on the FOMC minutes and on Fed Chairman Bernanke’s testimony on Wednesday. He is expected to remind markets of his current stance, which could lead to a reassessment of rate expectations and a reversal of the recent FX moves.