Better bid; but waiting on the Fed
Speculation that the government/Labour Party talks were making progress gave some support to the Pound, but as yet nothing of substance has been declared. There was also some comment that talks will need to conclude by the middle of next week with the government under increasing pressure to act to avoid holding European elections later this month. The Conservative party are expected to lose a substantial number of seats in Thursday’s local elections leading to rising speculation that Conservative Party activists would force a no-confidence vote in Prime Minister May.
Sterling did gain some support from increased European and global growth outlook optimism. Trading flows also provided net Pound support, providing a lift at month-end whereas usually, Sterling dips lower. The Euro dipped to just below 1.1625 and the Pound peaked near 1.3050 against the Dollar. All appears steady on this morning as we await April’s manufacturing PMI data with consensus forecasts pencilling in a slowdown.
The US Dollar is traded with a negative bias yesterday, with the market switching to a cautious mood ahead of the Federal Reserve (Fed) metamorphosis process. The FOMC started its two-day meeting with a no-change decision, tinged with dovish tilt, already priced in. Fed watchers will be looking for further clues of easing in the post-meeting statement. External headwinds and global trade relations are likely to be among the leading causes of concerns.
The Dollar maintained a softer tone against European and commodity currencies yesterday with speculation over a relatively dovish stance from Chair Powell and a possible cut in the interest rates on excess reserves.
Activity surrounding the Dollar today is likely to be subdued ahead of the Fed statement given holidays in much of Europe, although there is also an important ISM manufacturing release which will be important for the sentiment.
The Euro against the Dollar held above 1.1200, but a more hawkish tone could trigger sharp Dollar gains.
The Eurozone had a good day number wise yesterday, with almost all readings improving. Unemployment for the region fell to 7.7% from 7.8%, the lowest rate since September 2008, and Q1 GDP grew 0.4% with the year-on-year increase above expectations at 1.1%. German unemployment declined for April as well as the CPI increasing 1% for the month and up to 2% year-on-year. Versus the Dollar, the Euro gained support and moved above 1.1200, with US-German yield spreads narrowing lending further support to the single currency.
Today sees holidays in much of Europe so we can expect a fairly quiet day for the Euro. The UK sees housing prices and mortgage approvals and there will be a speech from the European Central Bank’s (ECB) De Guindos, but otherwise, there should not be too much volatility. Having said this, there is some data due out of the US so we could see movement there.
Data to watch
08:30 GBP Markit Manufacturing PMI (Apr)
08:30 EUR ECB’s De Guindos speech
12:15 USD ADP Employment Change (Apr)
13:30 CAD Markit Manufacturing PMI (Apr)
13:45 USD Markit Manufacturing PMI (Apr)
14:00 USD ISM Manufacturing PMI (Apr)
14:00 USD ISM Prices Paid (Apr)
18:00 USD Fed’s Monetary Policy Statement
18:00 USD Fed Interest Rate Decision
18:30 USD FOMC Press Conference
20:15 CAD BoC’s Governor Poloz speech
22:45 NZD Building Permits s.a. (MoM) (Mar)