Sterling gained momentum following strong retail data and improved services activity. Retail sales rose by 1.2% MoM in April and by 5.0% YoY, signalling strong consumer spending. The S&P Global Services PMI improved to 50.2, returning to expansion territory. Inflation data earlier in the month (3.5% YoY) had already dampened expectations of an imminent BoE rate cut, and these latest figures reinforced that caution. CBI Distributive Trades showed signs of stabilisation, with the balance improving from -44 in March to -8 in May.
The UK calendar is light until early June, with BoE mortgage approvals and consumer credit data due next Monday (3 June). These figures will be key for gauging housing market resilience. In the meantime, sterling may respond to international risk sentiment and broader USD dynamics.
Eurozone sentiment indicators offered mixed signals. Consumer confidence rose to -15.2, an improvement over April, and economic sentiment reached 94.8, modestly ahead of forecasts. However, French inflation surprised on the downside, with May’s preliminary CPI falling to 0.7% YoY, and -0.1% MoM, suggesting disinflation pressures persist. ECB minutes released on Thursday confirmed policymakers are leaning toward a June rate cut, while Lagarde’s Monday speech maintained a cautious tone.
Markets will focus on German unemployment data (Wednesday) and inflation prints from Italy and Germany (Friday). With inflation trending lower in France and wage growth decelerating, similar outcomes in Germany and Italy could strengthen expectations for an ECB cut in June. The euro may remain under pressure against both GBP and USD if data confirms the disinflation trend.
The U.S. dollar lost further ground despite the Fed’s higher-for-longer stance. Durable goods orders for April rose 7.5%, well above expectations, and consumer confidence came in at 86, slightly below forecast. However, services activity remained robust, and new home sales jumped 10.9% MoM, showing ongoing resilience. A steady flow of Fed speakers, including Powell, Bostic, and Williams, struck a measured tone, citing progress on inflation but signalling patience before rate cuts.
Friday brings the most critical data: the Core PCE Price Index, the Fed’s preferred inflation measure, is expected to rise slightly, with consensus at 0.2% MoM. GDP revisions (Thursday) and Chicago PMI / Michigan sentiment (Friday)will round out the view on growth and consumer confidence. A stronger-than-expected inflation print could support the dollar further; a soft read may revive rate cut speculation for Q3.
The BoK is expected to cut its base rate by 25bps to 2.50%, as growth slows and inflation hovers near target. The move would mark a pivot toward easing in response to Q1 economic contraction.
The SARB is forecast to lower its repo rate by 25bps to 7.25% amid sub-3% inflation and currency stability. A dovish tone could follow if disinflation continues.
While the OCR is expected to remain at 5.50%, markets will watch for any shift in tone as inflation trends lower and growth moderates.
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*Interbank rates are correct at 7am on the date of publishing.
