Forex Weekly Outlook May 10-14 – UK GDP, US Retail Sales In Focus

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The BoE responded to stronger economic conditions and slowed the pace of its QE program at its policy meeting. Employment numbers in Canada and the US nonfarm payrolls were far short of expectations. Is the US recovery sputtering? This week’s inflation and retail sales numbers may help provide an answer. 

EUR/USD rallied late in the week as the pair recorded its best weekly performance since November 2020, with gains of 1.22%. The Canadian dollar recorded another strong week, with gains of 1.26%. USD/CAD dropped to its lowest level since September 2017, as the pair ended the week slightly above the 1.21 level. GBP/USD rose 1.32%, its highest one-week gain of the year.

In the eurozone, manufacturing continues to show strong growth. German Manufacturing PMI shined with a reading of 66.2 and the eurozone with 62.9 points. In the UK, PMIs for manufacturing, services, and construction all came in above the 60-level, well into expansionary territory. A reading above the 50-level indicates growth.

The Bank of England slowed the pace of QE, from 4.4 billion pounds a week to 3.3 billion, but stressed that this was not a tightening of policy. The bank maintained interest rates at a record low of 0.10%.

Canada’s employment numbers for May were much worse than expected. The economy shed 207.1 thousand jobs, compared to the consensus of a loss of 160.5 thousand. Unemployment jumped to 8.1%, up from 7.5% and above the forecast of 7.8%.

In the US, manufacturing activity grew at a slower pace in April, as the ISM Manufacturing PMI dropped to 60.7, down from 64.7. It was a similar story for business activity, as the ISM Services PMI slowed to 62.7, down from 63.7. Both PMIs missed their estimates.

The market was looking for a blowout report from nonfarm payrolls for April, with an estimate of 990 thousand. Some analysts had even predicted a print of two million, but in the end, the economy created just 266 thousand jobs. Unemployment rose to 6.1%, up from 5.8% and above the estimate of 6.0%. There was a silver lining, as wage growth climbed 0.7%, rebounding from -0.1% and above the forecast of 0.0%.

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