Global markets experienced significant declines on Friday amidst growing geopolitical tensions, particularly concerns regarding a potential Iranian strike on Israel over the weekend. However, market anxiety eased on Monday following Iran's weekend assault, largely thwarted by Israeli air defences, viewed as a retaliatory measure for an earlier suspected Israeli strike on Syria. Iran labelled the attack a "success," leading observers to speculate that direct hostilities between Israel and Iran could temporarily subside.
Nevertheless, global markets still face substantial challenges in the upcoming week. The previous week's higher-than-anticipated US inflation figures prompted a reassessment of expectations for US interest rate cuts, driving the USD to nearly six-month highs. Conversely, a decrease in European inflation has prompted the European Central Bank to consider rate cuts, possibly as early as June, resulting in a sharp decline in the EUR's value last week.
Looking forward to this week. The release of US retail sales data will provide insight into the strength of the US economy. Additionally, the industrial production and Philadelphia Federal Reserve index releases will be closely monitored for further indications of US economic performance.
Data on employment and retail sales from the UK, Germany's ZEW survey, and Australia's employment figures will offer insights into the global economy's health, with investors keenly analysing these releases for signs of economic momentum or potential challenges.
The data focus of the week's foreign exchange markets will be Wednesday's crucial inflation releases from the UK. A deviation from expectations could significantly impact the value of GBP, with any shortfall compared to consensus forecasts likely exerting downward pressure.
Conversely, an inflation reading exceeding consensus (where consensus stands at 2.9% year-on-year) would likely bolster GBP, potentially altering expectations for the timing of the first interest rate cut from June to August, positioning the Bank of England differently from the ECB regarding the initiation of rate cuts.
