The pound recorded its first positive month of the year in May but was largely rangebound against the dollar during the first half of last week, before tumbling below 1.25 amid a worsening growth outlook.
The UK currency was unable to throw a counter punch against a strengthening dollar with the UK market shuttered for the Spring bank holiday and the Queen’s Platinum Jubilee.
The dollar’s move high was given added impetus on Friday by the publication of a better-than-expected US jobs report, which signalled a tight labour market that could reinforce the Federal Reserve’s aggressive path of policy tightening.
Nonfarm payrolls rose by 390,000 jobs in May, the Labour Department reported in its closely watched employment release. Economists had forecast payrolls increasing by 325,000 jobs last month.
PMIs in focus for the pound
The UK economic calendar eases back to life on Tuesday with the release of the British Retail Consortium (BRC) like-for-like retail sales, which are forecast to plunge even lower amid the spiralling cost of living.
On Tuesday, the final UK services purchasing managers’ index (PMI) print for May is published, which is forecast to remain at 51.8 having dropped drastically the previous month – pointing to a deteriorating economic outlook.
A data light week in the UK calendar means less influential prints will be in focus: Halifax house prices, S&P Global construction PMI for May, RICS Housing Price Balance for May – all on Wednesday – and consumer inflation expectations on Friday.
Inflation data in focus for the dollar
All roads for the dollar lead to US inflation data on Friday, which will influence Federal Reserve rate-setters appetite for aggressive hikes.
US inflation is expected to continue demonstrating signs that it may have peaked, having moderated for the first time in eight months in April to an annual pace of 8.3% – 0.2% lower than the previous month. Despite edging lower, inflation exceeded economists’ expectations and remained at a 40-year high.
The consensus is for the consumer price index to have risen 0.7% last month.
Another three notable data sets from the US economy will attract investor attention this week: goods and services trade balance for April on Tuesday, initial jobless claims for the week ended 3 June on Thursday, and the Michigan consumer sentiment index for June on Friday.
Applications for US unemployment insurance are expected to have risen last week, edging away from historically low levels amid a tight labour market. Initial jobless claims decreased by 11,000 to 200,000 the previous week.
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