Sterling ended Friday at a five-week low against the euro, pairing those losses with a fall of over a cent to the US dollar after news of Israeli strikes on Iranian nuclear facilities rocked currency markets.
Investors flocked towards safe-haven assets, supporting not just the US dollar but also the price of oil and gold. News of another spiraling conflict dented fragile morale and arrived just in time to pose a fresh threat on the global economy’s rocky road to recovery.
After weathering a packed schedule last time out – which included the government’s spending review – the UK will report inflation data on Wednesday before the Bank of England take centre stage the following day. Markets are expecting policymakers to leave rates unchanged at 4.25%, but last week’s rather worrying jobs report might have changed some minds on Threadneedle Street.
There was a big jump in American consumer sentiment this month, according to the University of Michigan’s latest study. After falling to near-record lows of 52.2 in April and May, the score surged ahead to 60.5 in June. The first rise in the score in almost six months was driven by improved assessments of both current conditions and future economic prospects.
Chinese retail sales growth jumped from 5.1% to 6.4% in May. Industrial production output for the world’s second largest economy meanwhile came in largely in line with forecasts but below April’s figures.
For the time being, currency markets – and the entire financial system, for that matter – are likely to be significantly affected by developments in the Middle East. Risk appetite will surely be low until temperatures come down, but it is unclear exactly how the next stage in the conflict will unfold.
Central banks in the UK, the USA and Japan will also be in focus alongside their respective interest rate decisions. Meanwhile, economists are predicting that UK inflation stayed stubbornly high last month after April’s eye-catching surge.
Other key events include British and American retail sales figures as well as the ZEW economic sentiment index for Germany.
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