There was little limited reaction to the UK retail sales data on Friday with global developments dominating, although higher UK yields did have some positive impact on the currency. Sterling advanced higher against the dollar before dipping sharply after the US data with a generally strong dollar and weaker equities sapping UK currency support. The Euro retreated as relatively narrow ranges prevailed do to the long bank holiday weekend. UK markets were closed on Monday with expectations of at least two further Bank of England rate hikes providing net support. BRC data recorded an increase in shop prices of 9.0% in the year to May from 8.8% previously and a fresh record high since the survey started in 2005, although food-price inflation eased marginally. Sterling held against the firm dollar on Tuesday.
No Key Data
There are also important European inflation readings this week with the German data on Wednesday and Euro-Zone release on Friday. ECB council member Wunsch stated that the expansive fiscal policy requires a stronger monetary policy reaction, maintaining expectations of further rate hikes.
Key Data
Eur Consumer Confidence Prev-17.4 Exp -17.4
The US PCE prices index increased 0.4% for April with the year-on-year rate increasing to 4.4% from 4.2% and above expectations of 3.9%. The core index increased 0.4% compared with consensus forecasts of 0.3% with the year-on-year rate edging higher to 4.7% from 4.6% and above expectations of 4.6%. The prices data maintained concerns over sticky inflation pressure in the economy and the threat of further interest rate hikes. Fed Funds futures indicated around a 65% chance that there would be a further interest rate hike at the June policy meeting. The dollar lost some traction on Monday as defensive demand faded, but Federal Reserve expectations provided robust support. Activity was inevitably curtailed by market holidays in the UK and US. Markets will be looking at the latest labour-market evidence this week with the employment report due on Friday and job-openings release on Wednesday.
No Key Data