Sterling begins this shortened week under a little bit of downward pressure, with Thursday’s (8 May) meeting of the Bank of England’s Monetary Policy Committee likely to result in a cut to interest rates.
A mixed week for the pound saw it batted back from 1% gains against the US dollar and euro to finish largely unchanged against those rivals. The US dollar meanwhile was supported by a more cooperative approach to trade from the federal government and solid labour data (more on that below).
Back before the long weekend, we learned that inflation in the eurozone came in at 2.2% in April’s preliminary read. That was slightly above what had been expected, although there didn’t seem to be much of a reaction, a reflection perhaps of just how close it has moved to the European Central Bank’s (ECB) 2% target.
Strong labour data out of America was another help to the US dollar. Unemployment held firm at 4.2% and the economy added 177k jobs last month – below March’s number but well above market expectations. All this helped stock indices like the S&P 500 finally recover their losses following Liberation Day.
If you’re thinking the rally has further to run, it might be worth dwelling on the fact that Amazon CEO Jeff Bezos will be cashing in on billions of dollars from his holdings this year. That decision was documented in SEC (Securities and Exchange Commission) filings required by the American authorities.
American markets did not enjoy a day off yesterday and were instead concerned with ISM services PMI. In April’s report, the services sector unexpectedly expanded from a nine-month low set in March, as new orders and business activity supported a more positive outlook.
Mainstream British politics is still processing the shockwaves from last week’s local elections, where Reform UK made substantial gains in councils, mayoralties and trumped the Labour party by just 6 votes in the Runcorn by-election. As recriminations began in both the Labour and Tory parties, Reform leader Nigel Farage celebrated “the beginning of the end” of the Conservatives – arguably the world’s most successful political party.
This week features interest rate decisions from the Bank and the Federal Reserve. While the Bank is expected to announce a quarter-point cut, the outlook is less clear when it comes to the Fed. Both a hold and a similarly-sized cut are in play.
Things are less busy outside the world of monetary policy. German and Chinese trade data will be interesting opportunities to evaluate the impact of tariffs, although the economic calendar shows few really significant events aside from these.
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