Middle East tensions will remain a key element in the short term and the UK domestic agenda will also be in focus this week amid three key data points.
Market volatility spiked on Friday as traders focussed on expectations of Iranian retaliatory action against Israel following an earlier Israeli strike against the Iranian embassy in Syria.
Gold surged to record highs before a sharp reversal while the dollar jumped to fresh 5-month highs.
The Pound to Dollar (GBP/USD) exchange rate posted sharp losses to 4-month lows near 1.2425 before a recovery to 1.2470 on Monday.
After a period of narrow trading ranges, volatility is likely to remain elevated in the short term.
During the weekend, Iran launched a wave of drone and missile attacks on Israel and overall risk conditions will be crucial in the short term.
The key element now will be the next move by Israel with the US and UN calling for restraint.
Gold and equity market developments will be crucial elements for all asset classes. Overall tensions will inevitably remain high which will tend to underpin the US currency.
US economic data will also be an important element given that the dollar has also benefitted from a dramatic scaling back of US interest rate expectations.
MUFG commented; “The path for further US dollar appreciation from here remains clear with the US CPI data forcing markets into a rethink on the starting time for the first rate cut from the Fed.”
The US retail sales data is due on Monday with consensus forecasts for an increase in sales of 0.4% for March for the month after a 0.6% gain the previous month.
Underlying sales are forecast to increase 0.5% for the month after a 0.3% increase previously.
The US will also release the latest New York Empire manufacturing survey. Last month’s figure was again notably weak with a reading of -20.9 with consensus forecasts for an improvement to around -5.0.
Another weak reading would trigger fresh doubts surrounding the manufacturing sector while pricing components will also be watched closely in the survey.
China will release the latest batch of data on Tuesday with the releases for GDP, industrial production and retail sales.
Markets expect slightly weaker data on the month and stronger than expected readings would help confidence in the global economy.
The UK will release the latest labour-market data at Tuesday’s European open.
The principal focus will be on wages, especially given the importance for Bank of England interest rate expectations.
Consensus forecasts are for headline earnings to increase 5.5% after a 5.6% increase the previous month with underlying earnings edging lower from 6.1%.
Weaker than expected data would increase speculation over an early move to cut interest rates, undermining the Pound, while stronger than expected data would trigger fresh doubts whether an early move is realistic
