Airstrikes cause nervous markets
Britain’s Pound fell against the Dollar on Thursday in a session that saw it flip direction several times. This happened as investors saw uncertainty surrounding the country’s departure from the European Union outweighing signs of economic resilience. Confidence on both sides of the channel is pretty firm, so the initial talks are looking like they may be slow and they do not start until mid-May.
European Council President Donald Tusk met British Prime Minister Theresa May in London on Thursday. The EU’s chief negotiator, Michel Barnier, insisted on Wednesday that Britain must stop pressing for immediate parallel talks with the bloc on a post-Brexit free trade deal, and first agree on withdrawal terms.
Any momentum The Dollar had against the Japanese Yen halted overnight. There was also no real impact against the Pound or Euro after the United States launched cruise missiles at an airbase in Syria in retaliation to chemical attacks. The Dollar Index, which gauges the greenback against six major rival currencies was slightly lower on the day at 100.66, up 0.3% for the week.
Against the Yen, which tends to gain in times of geopolitical tension, the Dollar erased its early gains and dropped 0.3% to 110.44 Yen. Later on today, the U.S. nonfarm payrolls report is expected to show an increase of 180,000 jobs in March, compared with 235,000 in February, according to economists polled by Reuters. This could reinforce expectations that the Federal Reserve will deliver two more interest rate increases this calendar year.
The Euro was slightly lower against both the Pound and the US Dollar yesterday, after dovish comments from European Central Bank (ECB) President Mario Draghi helped push it to a three week low against the greenback. Draghi said on Thursday that he does “not see cause to deviate” from the ECB’s stated policy path, which includes bond buying at least until the end of the year and record-low rates until long after that to stimulate inflation.
Analysts have upgraded their outlook for the Australian Dollar for a second straight month. A Reuters poll of 51 analysts saw the Aussie at $0.7600 in one month, up a cent on the March survey. There was also less appetite for riskier carry trades – for example borrowing in Yen to buy Aussie – as political deadlock dimmed expectations of fiscal stimulus from President Donald Trump’s administration.
The Reserve Bank of Australia (RBA) has also dented the currency this week by sounding more concerns about the labour market, with unemployment hitting a 13-month peak in February. Combined with low inflation and wages growth, this has made it very unlikely that the bank would be following the Federal Reserve in hiking rates this year, thus narrowing the Aussie’s yield advantage.
Data to Watch: 6:45am CHF EUR Unemployment Rate s.a (MoM) (Mar). 7:00am GER EUR Imports (MoM) (Feb), Current Account n.s.a (Feb), Trade Balance s.a. (Feb), Exports (MoM) (Feb). 9:30am GBP Manufacturing Production (MoM) (Feb), Goods Trade Balance (Feb). 10am GBP BOE’s Governor Carney Speech. 1:00pm GDP NIESR GDP Estimate (3M) (Mar). 1:30pm USD Nonfarm Payrolls (Mar), Average Weekly Hours (Mar), Labor Force Participation Rate (Mar), Average Hourly Earnings (MoM) (Mar), Unemployment Rate (Mar). 6:00pm Baker Hughes US Oil Rig Count. 8:00pm USD Consumer Credit Change (Feb).