ot off the heels of the fairly dismal performance of the UK economy in the first quarter of the year, manufacturing and industrial production both shrank month-on-month in April, after investors had eyed a modest increase in both. Output in the manufacturing sector was particularly weak, shrinking by 1.4%, its largest monthly decline in five years. This raised concerns that the slowdown in activity in the first three months of the year could prove more than a temporary phenomenon. This morning’s labour report was also a slight disappointment, with average earnings growth, including bonuses, slowing to 2.5% in April from 2.6%.

The big story in global news was, of course, the historic agreement signing between the US and North Korea. The major currencies were little moved on the news, although we did see a slight increase in demand for riskier currencies as a result, as would be expected.

Fed on course to hike rates, ECB could announce policy tweak

Despite a quiet start, this week could prove to be one of the most volatile in the currency markets in the past few months, with a number of fairly significant announcements likely to shift the major currencies.

First up, the House of Commons will be considering amends made to the UK’s EU withdrawal bill on Tuesday. Then on Wednesday after London close, the Federal Reserve is expected to announce a second interest rate hike, so far, in 2018. Growing expectations for another hike come off the back of a generally encouraging macroeconomic performance in the US. As is generally the case when market pricing is so elevated going into a meeting, the main focus among currency traders will instead be on the Fed’s communications regarding future policy, namely whether we should expect to see a total of three or four rate increase in total in 2018. We think a hawkish ‘dot plot’ and accompanying rhetoric that keeps the possibility of four hikes on the table could provide some decent support for the greenback this week.

The European Central Bank will also be meeting on Thursday afternoon in Riga, Latvia. A report released from Bloomberg earlier this month stoked speculation that policymakers could, this week, begin discussions on when to end the bank’s quantitative easing programme, following the sharp jump in Eurozone inflation in May. We think the twin worries of mostly soft data and weakness in Italy financial market are, however, sufficient to delay the announcement of an end to QE for later this year, likely at the July meeting.