Global Themes

UK Earnings to define the pound; the week ahead 
- Earnings data to drive the pound 
- GDP and Inflation releases for EZ 
- FOMC members take centre stage


Earnings data to drive the pound
Average earnings could be the catalyst to break Sterling’s range bound movements from last week against both the Euro and US Dollar.

GBP/USD was predominantly trading in the $1.35 handle and GBP/EUR broke above the €1.14 level. However, recent Euro strength has seen the pair retreat back to the €1.13 level where it resides this morning.

On Tuesday, average earnings data will be released at 9:30am. The earnings data will be measured on a y/y basis for a rolling 3-month period, earnings including bonus is expected to drop from 2.8% to 2.6%, while earnings excluding bonus is expected to grow from 2.8% to 2.9%. Depending on the outcome of the wage data this could shape Sterling for the remainder of the week. If the releases meet or beat expectations, this could help GBP/USD retake the $1.36 handle, but an unexpected decline risks a slide back below $1.35 and possibly extend towards the pivotal $1.3450.

Prime Minister Theresa May's former chief of staff Nick Timothy suggested last week that the Brexit transition period should be extended beyond 2020 in order to solve Cabinet indecision on customs arrangements (source: BBC). Any further Brexit developments or comments could have a larger effect on the pound with the lack of data releases.


GDP and Inflation releases for EZ
The European docket will be quite full this week, with GDP and inflation for the Eurozone released on Tuesday and Wednesday respectively.

Though GDP is forecast to come in the same as last time, it is the inflation m/m number which could have some worried. April’s inflation number m/m is set to come in a 0.3% against a previous standard of 1.0%. The number has highlighted the recent comments made from European Central Bank (ECB) policymakers that inflation is too low to tighten current monetary policy measures.

Since mid-April EUR/USD fell close to 5% before bottoming out around the $1.18 handle, and we find the pair this morning trading back around the mid $1.19’s. $1.20 could prove to become a psychological level for EUR/USD, requiring significant momentum to push the pair back into familiar trading ranges seen in 2018. GBP/EUR is hit by the Euro’s recent resurgence, €1.13 beckons but could prove to be a saving grace for importers should this level manage to hold.

This week marks the end of an era for ECB Vice-President Vitor Constancio, as the VP will step down from his duties and Spanish Minister Luis de Guindos will take his role. The changeover should re-highlight current President Mario Draghi’s tenure is to end in 2019, with German minister Jens Wiedemann the most likely candidate to take over the helm.


FOMC members take centre stage
Members of the Federal Open Market Committee (FOMC) are giving speeches throughout the week and market participants will be hoping they give a clear indication on the outlook of the Federal Reserve’s (Fed) path for interest rates going forward.

Starting today with member Loretta Mester, this is followed throughout the week by members John Williams, Raphael Bostic, Neel Kashkari, Robert Kaplan and Lael Brainard, so there will be plenty for participants to analyse and mull over.

There are data releases this week which could shape which direction investors decide to take the US Dollar. Retail sales data is released on Tuesday, industrial production on Wednesday and jobs data on Thursday. This data along with the FOMC member speeches should steer the dollar, whether it is back towards $1.20 or regaining the strength back in to the $1.18 handle against the Euro and if we will see GBP/USD reclaim $1.36 or stay in the $1.35 handle.

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