We are seeing some dollar selling against both the euro and sterling ahead of what should be a week of greater volatility vs. that which we’ve seen before. Month end flows are likely to see increased institutional trading going into mid-week. Thereafter, we have inflation data in the Eurozone, together with labour market data in the US at the end of the week. In the background, we are still keeping a wary eye on events in Ukraine, where tensions remain high. The dollar itself it trading 0.7% below the average of the year to date, so after the gyrations being seen so far this year, there remains an underlying belief that the dollar still has scope to recover as the US recovery gains its poise. In recent years it’s worth noting that May has proved to be a strong positive for the dollar, averaging 3.9% (dollar index) looking back over the past four years.
For today, the data agenda is pretty light, but as the early price action has shown, flows going into month end are more likely to dominate the price action. The confirmation of Pfizer’s interest for UK based AstraZeneca is also behind the initial dollar selling against Europe, but as always, the timing, structure and uncertainty behind the flows of money for the bid leave scope for future volatility depending how the deal progresses.