GBP under pressure due to BoE vote split, Euro and USD look ahead to busy week of data

GBP

The Pound started the week trading aimlessly, with a lack of UK data causing investors to refrain from making bold moves ahead of the Bank of England's upcoming interest rate decision.

On Thursday, the central bank delivered the widely anticipated decision to keep interest rates unchanged, maintaining the base rate at 5.25% for the sixth consecutive time.

However, this month's voting split revealed divergence, with 7 out of 9 Monetary Policy Committee members choosing to maintain rates unchanged, while 2 officials advocated for an immediate rate cut.

The notably more dovish voting split prompted markets to increase their expectations for a June interest rate cut, consequently weakening Sterling sentiment in the aftermath of the release.

As Friday unfolded, the Pound remained on the defensive, facing difficulty in strengthening against its peers, even with the release of some positive preliminary GDP data.

The UK's preliminary GDP data for Q1 of 2024 revealed that the UK economy grew by 0.6%, rebounding from a previous -0.3% reading in the final quarter of 2023, and surpassing expectations of 0.4%.

Despite the better-than-expected GDP reading, which confirmed the UK's exit from its technical recession at the end of 2023, Sterling continued to trade sideways following the release.

Looking ahead for the Pound, the focal data release this week will be the UK's latest labor data.

Set for release on Tuesday, the UK's upcoming unemployment data is projected to indicate that unemployment remained steady at a six-month high of 4.2% in March.

Similarly, UK average earnings, excluding bonuses are anticipated to moderate during the same period. If the data aligns with expectations, indicating a slowdown in the UK labor market, this could reinforce bets on a BoE rate cut and consequently impede GBP's trade.

USD

The US Dollar commenced the week fluctuating against its counterparts due to a lack of domestic data releases, resulting in USD exchange rates struggling to capture investor attention.

However, on Tuesday, the Greenback recorded modest gains following some hawkish remarks from Federal Reserve official Neel Kashkari.

Heading into Thursday, USD exchange rates faced challenges in gaining ground following disappointing domestic jobs data.

The latest initial jobless claims for the week ending May 4 rose more than anticipated, which consequently hampered USD exchange rates.

By the week's end, USD was weakened by the release of the latest Michigan consumer sentiment index, which printed below forecast.

The data came in at 67.4, falling short of the expected reading of 76, causing the Greenback to conclude the week on a weaker note.

The US Dollar is poised for a week filled with significant data releases.

On Tuesday, the US will unveil its latest PPI data for April, which is projected to hold steady at 0.2%. Any deviation from this anticipated figure could potentially lead to USD exchange rates slipping at the beginning of the week.

Entering Wednesday, US headline and core inflation data for April are set for release. As both datasets are expected to moderate closer to the Fed's 2% target, this could weaken USD exchange rates if the data aligns with expectations.

We will also witness the release of the latest US retail sales data on Wednesday, which is predicted to experience a slight decline for this reading.

EUR

The Euro started the week hesitantly against its counterparts after receiving mixed releases from the Eurozone's largest economy.

An unexpected drop in German factory orders initially weakened the common currency, with orders declining by 0.4% in March instead of the predicted 0.5% increase.

However, helping to offset some of the losses for EUR were Germany's latest export figures, which showed a 0.9% increase in the export-heavy industry.

Moreover, better-than-expected retail sales across the Eurozone provided additional support for the Euro on Tuesday. Retail sales surged by 0.8% in March, exceeding market forecasts of 0.6% and rebounding from February's -0.3% reading.

Entering Wednesday, EUR exchange rates were lifted following the release of better-than-expected German industrial production data.

Germany’s latest industrial production figures reported a 0.4% contraction in March, down from February’s 1.7% reading, but surpassed forecasts of a 0.6% decline.

Although this marked the first contraction in the sector within a three-month period, industrial production slowed less than expected in the Eurozone’s largest economy, ultimately lending support to EUR.

At the end of the week, minimal Eurozone data releases led to the single currency ending the week trading without a clear direction.

Looking ahead for the Euro, on Tuesday, if German inflation is predicted to slightly increase, this could potentially boost EUR exchange rates, setting a positive tone for the week.

Also scheduled for release on Tuesday is Germany’s latest ZEW economic sentiment index. With expectations of a rise in the data, this could further strengthen the Euro at the beginning of this week’s trading session.

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