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Market Report 17-05-2022

Published: 17/05/2022 By ECAP

This morning’s UK labour data could trigger a few gyrations in sterling. Markets will be paying unusually close attention to the monthly claimant count number for any signs that heightened UK growth concerns are potentially weighing on hiring decisions. Markets will then quickly turn their attention to Wednesday’s UK inflation data, which is expected to show that prices soared by more than 9% in the year to April. If confirmed, this would place huge pressure on the Bank of England to continue raising interest rates at upcoming meetings. Communications from the MPC have turned increasingly dovish and largely muddled in recent weeks, although investors think that upcoming inflation prints will likely force the bank’s hand. This week's line up of no fewer than six BoE member speakers provides a chance for a hawkish pivot, though it may be slightly too early.

Amid tentative signs of an easing in restrictions in parts of China, the rally in the safe-havens has taken a breather. The US dollar has retreated, albeit only modestly, from its strongest position in two decades.
EURUSD appears to have found at least a temporary floor around the 1.04 mark, with the pair helped on its way yesterday by some hawkish comments from ECB member Francois Villeroy de Galhau. Villeroy claimed that a weaker euro could harm the Governing Council’s efforts to bring down rising Euro Area inflation, while also noting that the bank could by in for an ‘active summer’ on the monetary policy front. This more-or-less confirms market suspicions that the June ECB meeting will be a highly important one, and could pave the way for a first interest rate hike by no later than July.