Friday May 12th will see the release of a set of crucial US data for April at 13:30 BST; retail sales, retail sales excluding autos, CPI and core CPI. Please be aware that it will likely affect USD and USD crosses along with commodities.
The dollar index has rebounded over the past four trading sessions after hitting a 6-month low of 98.40 on May 5. Gold prices saw a rebound on Thursday, and spot gold has now touched a four-day high of $1229.85 on Friday during early European session.
US retail sales (MoM) saw a downtrend over the past three months mainly caused by the decline in auto and petroleum sales. The consensus for the April figure is an optimistic forecast of 0.6%. However, sales in April for the three automobile tycoons, Ford, Chrysler and GM, saw a further falling of 7.1%, 7% and 5.8% respectively. The declines will likely weigh on the upcoming data. US retail sales outlook seems to be a bit gloomy before auto sales see a recovery.
Retail sales excluding autos (MoM) also saw a downtrend over the past three months with the reading for March, surprisingly, was a zero growth, not seen since August 2016.
US CPI (YoY) has seen a healthy upswing since May 2015; staying above the Fed’s 2% target since December 2016. Core CPI (YoY) has been oscillating steadily in the range between 2.1% – 2.3% since January 2016.
On Thursday, the Bank of England (BoE) announced that; interest rates remain unchanged at 0.25% and the asset purchase programme also remains unchanged at £435 billion which are both in line with market expectations. The BoE sees inflation to be above their 2% target for the next three years due to weak GBP. Consumption will continue to experience a slowdown; however, this will be balanced by rising trade and investment. Wage growth is expected to be quicker in 2018.
The BoE forecasts interest rates are likely to remain at the current level until late 2019. However, monetary policy may need to be tightened more than the markets expect over the next three years. The BoE also predicts the Brexit process to be smooth.
The BoE holds a positive outlook on inflation and economy. However, with regards to monetary policy, it is not very likely for the BoE to undertake a large-scale tightening until the Brexit negotiation deal has a clear outline. In addition, the BoE seems to be overly optimistic about the Brexit negotiation process. The EU is unlikely to make the process easy for the UK, to avoid encouraging other member states leaving following Brexit.
GBP/USD fell from 1.2940 after the UK data was released, holding above the significant support line at 1.2900. This support level was breached following the BoE announcement with GBP/USD hitting a 1-week low of 1.2848.