Ahead of the BoE (Bank of England) meeting last week, the UK consumer price inflation figures for May posted a big surprise, with the headline rate of inflation remaining at 8.7%, and the core rate, excluding volatile elements like food and energy, rising to 7.1%. The decision by the BoE on Thursday to hike interest rates by 50 basis points was not unanimous, with two members of the nine-strong committee voting for no change. The BoE decision came after the Federal Reserve decided to leave interest rates unchanged and the European Central Bank hiked by only 25 basis points. Is the BoE diverging from the other central banks, and does it mean anything for the FX markets? 

At the end of last week, the UK PMIs (Purchasing Managers' Indices) for manufacturing and services recorded drops in activity rates in both sectors, but that was in keeping with the general trend in Western PMIs, with the Euroland and US readings also dropping back generally. Over the weekend though was another curveball for financial markets, with a short-lived mutiny by the Wagner group in Russia, after it was alleged that the Russian military had targeted the group while in Ukraine. This hasn’t affected the financial markets, but it introduces more uncertainty regarding the economic and political outlook for the global economy. 

This week is a relatively quiet week in terms of data and events. In Euroland we have already had a weaker set of German IFO* business climate numbers for June, following in the footsteps of the weakness in the PMIs last week. 

Later in the week, UK consumer borrowing and M4 money supply figures for May are then followed by final Q1 GDP (Gross Domestic Product) figures. In the US, consumer confidence figures and more housing market data are the main areas of interest, alongside its final Q1 GDP release, and finally in Euroland the focus will be on Italian, German, Spanish, and finally the Euroland CPI (Consumer Price Inflation) figures. 

*Information and Forschung / Germany’s Institute for Economic Research

The US dollar has recovered a little further over the course of last week, but not necessarily against the likes of the EUR or GBP. Where the US dollar has gained most is against the likes of the Japanese yen and Chinese renminbi, with the dollar reaching 7-month highs against both. 

The Russian rouble also shed around 3% after the weekend's events and the Turkish lira continues to decline. Will the US dollar continue to make gains, and what will this mean for current trading rates against the likes of the euro and UK pound? 

I don’t think that there will be much direct movement caused by this week’s economic data and news, but the risks of a push higher in the US dollar most likely outweigh another sell off, in my opinion. The next big event in the markets is the US non-farm payrolls data, due a week on Friday. What will that data reveal in terms of the next moves for markets? 

Last week saw most central banks act as expected, but there were a couple of notable exceptions. The Norges Bank hiked by more than was expected (50 basis points versus the 25 basis-points consensus forecast), and then the Turkish Central Bank hiked interest rates from 8.5% to 15%, when a move to 20% was expected. Neither of these moves made much difference to the FX markets, and there is the risk of more tightening to come from both. 

As for this week, the Swedish Riksbank is set to hike interest rates again, while the central bank of Colombia is expected to leave interest rates on hold. Is there a risk of a bigger hike from Sweden? The financial markets don’t appear to think so, so any upside for the Swedish krone appears highly limited, in my view.