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UK Data

• Tuesday 9.30am BoE Mortgage Approvals for March. Previous 73.0k
• Tuesday 11.00am CBI Distributive Trades for April. Previous 1.0 bal
• Wednesday 7.00am Nationwide House Prices for April. Previous -0.6%m/m & 1.1%y/y
• Thursday 9.30am CIPS Manufacturing PMI for April. Previous 51.3 index

Sterling fell sharply across the board on Monday after investors proved lukewarm to the Bank of England’s plans to ease liquidity problems caused by the credit crisis. The Bank announced it would offer to swap government bonds worth £50bn for riskier mortgage-backed securities in order to ease tensions in the money markets. Sterling found support later in the week after the minutes from the BoE’s April MPC meeting revealed that two members voted to keep rates on hold, against expectations for a unanimous cut. Meanwhile, despite UK economic growth decelerating as expected, investors had braced themselves for a lot worse, reaffirming only a gradual slowdown. Market attention now shifts to this week’s housing data for any indication that the market is beginning to recover.

US Data

• Tuesday 3.00pm Consumer Confidence for April. Previous 64.5 index
• Wednesday 1.30pm GDP Annualised for Q1. Previous 0.6%q/q ann
• Wednesday 1.15pm ADP Employment Survey for March. Previous 8k
• Wednesday 2.45pm Chicago PMI for April. Previous 48.2 index
• Wednesday 7.15pm FOMC Interest Rate Announcement
• Thursday 1.30pm Core PCE Price Index for April. Previous 0.1 index
• Thursday 3.00pm ISM Manufacturing Survey for April. Previous 48.6 index
• Friday 1.30pm Non-Farm Payrolls & Unemployment Rate for April. Previous -80k & 5.1% 

The Dollar strengthened across the board last week, amid a growing conviction that the Federal Reserve was coming to the end of its monetary easing cycle. The market moved from effectively pricing in a even split between either a 0.25% or 0.5% rate cut at this week’s FOMC meeting to a 30% chance that rates could be left on hold a 2.25%. However, interest rate futures pared losses on Friday after a weaker than expected University of Michigan sentiment survey hit a 26-year low. In what is a busy week for the US, the key highlight will undoubtedly be the FOMC meeting on Wednesday where the Fed is expected to cut by 0.25% to 2.0%. However, with most measures indicating that real interest rates are zero or negative, the Fed may look to pause, waiting to see the impact of previous easing and fiscal stimulus.

EURO Data

• Wednesday 10.00am Eurozone Unemployment for March. Previous 7.1%
• Wednesday 10.00am HICP (Flash Estimate) for April. Previous 3.6%y/y
• Friday 9.00am Manufacturing PMI (Flash Estimate) for April. Previous 52.0 index

The Euro rose to an all-time high against the Dollar last week, breaching the psychological $1.60 level after hawkish comments from the ECB boosted the single currency. Yves Mersch (a member of the ECB’s governing council) was quoted as saying that the Central Bank may revise its inflation target upwards and that he was surprised that analysts still held the view that rates could be cut. However, the Euro came under pressure later on in the week after German business sentiment fell sharply. The IFO business climate index dropped to its lowest level since January 2006 as the impact of a stronger Euro, higher oil prices and a looming US recession took its toll on Europe’s largest economy. Market attention will focus on this week’s Eurozone inflation estimate, where expectations are for a moderate decline, given that inflation is running well above the ECB’s target.

Interest rate outlook