The most important events this week that could weigh on the movements of major currencies will be the Bank of England inflation report and interest rate decision in addition to the U.S. inflation data.
After posting its third straight weekly decline last week, investors will carefully watch the awaited Bank of England quarterly inflation report and monetary policy decision.
The most recent dismal reports from the U.K., especially the weak first-quarter growth, has cut bets on BOE interest rate hike in May from 90 percent to lower than 20 percent.
Last week, the services, manufacturing and construction PMI data were mixed, failing to give a clear picture about the growth in the first month of the second quarter.
Policymakers are highly anticipated to hold interest rate this month, where they may revise down their U.K. growth and inflation forecasts.
However, investors will look for clues on when will be the first interest rate increase this year, as BOE Carney has referred to the possibility of hiking rates in either August or November.
The BOE minutes for the policy decision will show directions inside the nine-member MPC committee, where some members may have voted to raising the borrowing cost during the meeting.
The pound will probably be affected by notes stated in the BOE inflation report and minutes, as well as BOE Carney’s remarks.
Any indication to rate hikes in the near future could help the pound to recover from its lowest level in four months, while the opposite is true.
The U.S. dollar managed to resume its rally against major currencies last week amid ease in geopolitical and trade tensions and improvement in U.S. data.
This week, eyes will focus on U.S. inflation data, more specifically the consumer prices and producer prices for April, after the Fed referred last week that inflation had moved close to target.
U.S. PPI may have soared 0.3 percent in April and 2.7 percent on the annual basis, while CPI probably surged 0.1 percent on the month and 2.0 percent on the year.
With inflation stabilizing around the Fed’s 2 percent goal, policymakers are predicted to hike interest rates for the second time this year in June.
Meanwhile, there are rising bets the Fed could raise the borrowing cost four times this year instead of three amid expectations of further progress in the world’s biggest economy.
Hence, the green currency could continue to get support unless it faces some selling from traders on profit taking after climbing near five-month high.
Last week, the euro was hit by the release of data showing an ease in the pace of expansion in the euro area in April and a more than forecast retreat in inflation.
The absence of important economic data from the euro area this week means the euro will get its direction from the general sentiment in the market and the U.S. dollar.
Gold slumped for a third straight week last week, as the strength of the dollar lowered the appeal of the precious metal as an alternative investment.
The yellow has continued to face some downside pressure after hitting a top of $1355.70 an ounce on April 18 but managed to find support near $1300.
Bullion prices will depend this week on the dollar and the development in trade negotiations between the U.S. and its trading partners.
Regarding oil, Brent crude stabilized above $72 a barrel, but failed to breach resistance at $76.50 due to a more than forecast rise in U.S. crude inventories and escalating output that rose to a record of 10.62 million bpd.
U.S. crude inventories may have risen by 0.16-million barrel in the week
ended May 4 after a crude build of 6.2 million barrel a week before, according
to the U.S. government EIA report forecasts.