Sterling Rises, Dollar Slips… But This Week Could Change Everything

The final week of April was relatively eventful, particularly from a central bank perspective. We had multiple rate decisions across major economies, but importantly, there were no real surprises. Markets had largely priced everything in, and as a result, attention has now shifted back toward data and broader macro themes.

We have begun May with a slightly different tone. The US Dollar has softened, while the Pound has found some strength, which will be welcome news for many with GBP exposure. That said, geopolitics still lingers in the background. The difference now is that markets appear to be placing slightly less weight on headlines alone and more on the economic impact of recent developments, particularly through energy prices, which continue to influence inflation expectations globally.

A Slow Start, Then Momentum Builds

With London closed on Monday, the week begins quietly, with focus on Europe and the U.S. Eurozone manufacturing PMI is expected to remain unchanged at 52.2, suggesting stable but unspectacular growth. In the U.S., factory orders for March are expected to rise by 0.5%, which would point to some resilience in industrial demand.

Tuesday brings more meaningful market drivers. The Reserve Bank of Australia is expected to hike rates by 25 basis points to 4.35%, a widely anticipated move that could support the Australian Dollar. Later in the day, U.S. ISM services PMI is forecast slightly lower at 53.7, though still comfortably above the key 50 level that signals expansion. As such, it is unlikely to materially weaken the Dollar unless we see a sharper-than-expected slowdown.

Wednesday sees services PMI data from both the Eurozone and the UK, with expectations for no revisions. These releases may not generate significant volatility unless there is an unexpected shift. In the U.S., ADP employment data is expected to show job growth of around 120,000. Given how closely markets are watching the labour market, any deviation here could begin to shape expectations ahead of Friday’s main jobs report.

Central Banks, Weak Retail Data and UK Political Risk

Thursday brings a mix of central bank decisions and European data. Both the Riksbank and Norges Bank are expected to keep rates unchanged, so the focus will be on forward guidance rather than the decisions themselves.

We also have Eurozone retail sales, expected to fall by -0.3%, reinforcing the theme of weak consumer demand across the region, which could weigh slightly on the Euro.

Alongside this, the UK local elections take place, and while these do not typically drive immediate FX moves, this set of results carries more significance than usual.

There is a growing sense of political fatigue in the UK, and early expectations suggest we could see a further shift away from the traditional two-party structure. The rise of smaller and alternative parties is something markets will be watching closely, not for immediate policy changes, but for what it signals about the direction of UK politics heading into the next general election cycle.

For Sterling, this matters. Political uncertainty tends to act as a headwind for the Pound, particularly when it raises questions around future fiscal policy or government stability. While we are unlikely to see a sharp move purely off the results themselves, any indication that the political landscape is becoming more fragmented could limit Sterling’s upside, especially in an already uncertain global environment.

Friday: The Main Event

The week concludes with U.S. Non-Farm Payrolls, which is likely to be the key market driver. Expectations are currently for around 62,000 jobs added, which would represent a relatively soft reading. Unemployment is forecast to remain steady at 4.3%.

As always, NFP has the potential to move markets significantly. A weaker-than-expected number would reinforce the view that the U.S. labour market is slowing, which could weigh on the Dollar and bring rate cut expectations back into focus. On the other hand, any upside surprise could quickly shift sentiment and support the Dollar into the weekend.

Final Thoughts

This is shaping up to be a bigger week than it may first appear.

We have a combination of:
• Key labour market data in the U.S.
• Ongoing central bank positioning
• Political developments in the UK
• And the continued influence of energy prices and geopolitics

Markets may be shifting back toward data-driven moves, but it would be a mistake to ignore how quickly sentiment can still change, particularly with political and geopolitical risks in the background.

For FX markets, this creates a challenging environment. Moves are likely to be sharp, but not always sustained, as positioning adjusts quickly to new information.

For anyone with currency exposure, this is one of those weeks where preparation matters. Having a plan in place, understanding key risk events, and being ready to act if markets move quickly will be essential.