Sterling continued its good run of form last week making solid gains against the euro and US dollar after an opinion poll showed a strong lead for the ‘Bremain’ camp. Despite the UK missing its second quarter GDP forecast, showing growth of 2% against the estimated 2.1%, the reaction was muted and did not stop sterling delivering gains of 1.7% and 1.0% against the euro and dollar respectively.
The bank holiday caused a slow start to the week for the UK however, with many experts still arguing that sterling is still being undervalued as a result of the upcoming referendum in June. This could cause further short-term gains in the week ahead.
National holidays in the US and UK will mean any eurozone data will have a limited impact on the markets. Reports from the eurozone have shown improvements across the board, but in particular highlighted the improvements in the construction and retail sectors.
German inflation data was also very positive, meeting market expectations month-on-month and increased by 0.1% on an annualised basis.
The mainly positive economic data from the eurozone has had little effect on the market as many are keeping a close eye on Thursday’s ECB meeting. We should expect to see trading increase after this.
Preliminary GDP figures released in the United Sates came in as expected at 0.8% quarter-on-quarter, showing an increase on the previous month’s 0.5%. However, the market focus was Janet Yellen's later address at the Radcliffe Institute for Advanced Study at the Harvard University.
Yellen’s comments that a rate rise in the US was likely in the coming months boosted dollar crosses, however, this would only happen if the economy continues to grow as expected.
Yellen’s comments also showed a new level of confidence in the US economy as inflation moves closer towards the 2% target.
U.S. Annual Inflation Rate in Percent
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Due to the public holidays in the US and the UK the markets have been pretty quiet, however, there is a busy week ahead as the last key employment data is released ahead of the Fed interest rate decision in June.
The main data out today is the CB consumer confidence data, which is forecast at 96.1.
US Dollar/ JP Yen fell to 110.80 this morning before recovering to 111.10. Japanese industrial production figures were also released, which came in down from last month’s 3.2% to 0.3%. The massive decrease was due to an earthquake earlier in the month which meant some major companies had to close their factories down.
It wasn’t all bad news though as Japanese household spending increased from - 5.3% to - 0.4%. Japan’s jobless claims rate for April also remained positive holding strong at 3.2%.
The Australian dollar showed some increases on the back of Q1.2016 export figures and building approvals easily beat estimates.
The New Zealand dollar made steady gains on the back of business confidence, increasing from 6.2% to 11.3%. Combined with an improvement in building approvals, this is helping to halt the decline of the New Zealand dollar
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