Sterling moved higher in the early hours of Thursday but quickly lost the gains in the London trading session. The Pound’s rally was instigated by broadsheet headlines that the UK would be willing to stay in the customs union after Brexit. The Cabinet burst the bubble when they denied those claims. Ministers later signed off a “backstop” that the UK would match EU tariffs after 2020, if there is no deal on their preferred customs arrangements.
Sterling gained some support rises in oil prices and UK bond yields edged higher providing some protection. Overall, the Pound consolidated around 1.3500 against the Dollar and the Euro retreated to the 1.1450 area after hitting resistance above 1.1430.
The Dollar index is trading in lower territory today for the first time after four days of consecutive advances, dropping from fresh year-to-date highs recorded earlier in the week.
The news is doing the rounds that China has offered the Trump administration a $200 billion reduction in its annual trade surplus with the US. The easing US-China trade tensions also favour a further upside in the Greenback.
Likely providing comfort to equity markets is the steady guidance being offered by members of the Federal Open Market Committee (FOMC) and regional Federal Reserve (Fed) Banks. Put simply, the expectation remains for a gradual rise in the Fed funds rate, but only if above-trend growth continues and the labour market tightens further.
In the absence of any major market-moving economic releases, traders are likely to take cues from speeches by influential FOMC members – Cleveland Fed President Loretta Mester and Fed Governor Lael Brainard are scheduled to speak later in the day.
In a limited Eurozone economic bulletin, the Eurozone construction output decreased by 0.3% month-on-month in March which was below expectations but rose 0.8% year-on-year. Outside of data, European Central Bank (ECB) Vice President Vítor Constânciomade commented yesterday with regards to the future of central banking. The data and Constânciomade’s comments, however, failed to excite the markets as the attention lay more to the Italian political front.
Underlying Italian uncertainty drove Euro selling as sentiment continued to cause longer-term doubts surrounding Euro liquidation. The Italian political situation became slightly more confusing as well with the 5-Star and Lega parties initially stating the policy document had been agreed before reports of there being minor issues yet to be resolved. Italian bonds did stabilise later in the session which provided an element of relief as the ECB suggested it might need to help stabilise markets.
Data to Watch:
00:30 JPY National CPI Ex-Fresh Food (YoY) (Apr)
00:30 JPY National Consumer Price Index (YoY) (Apr)
00:30 JPY National CPI Ex Food, Energy (YoY) (Apr)
08:00 USD FOMC Member Mester speech
13:30 CAD Retail Sales ex Autos (MoM) (Mar)
13:30 CAD Retail Sales (MoM) (Mar)
13:30 CAD Consumer Price Index (MoM) (Apr)
13:30 CAD Consumer Price Index – Core (MoM) (Apr)
13:30 CAD Consumer Price Index (YoY) (Apr)
13:30 CAD Bank of Canada Consumer Price Index Core (YoY) (Apr)
13:30 CAD Bank of Canada Consumer Price Index Core (MoM) (Apr)
14:15 USD FOMC Member Kaplan Speech
14:15 USD FOMC Member Brainard Speech
18:00 USD Baker Hughes US Oil Rig Count