Currencies do not like political uncertainty
Political risk events continue to dominate in Europe. The political deadlock continues in Greece although a Greek exit was not discussed at the Euro group meeting held yesterday, nonetheless, suggestions that Greece will leave the euro gained momentum leading to the EU Commission issuing a statement hoping that Greece would remain part of the euro zone. There are now signs that the political impasse could now prompt new elections in June. In this context the euro’s downside momentum is likely to gain traction.
March UK Trade Balance this morning is expected to show some improvement. Indeed the data would be welcome news following February’s widening as exports fell and imports remained relatively unchanged. Indeed total goods deficit showed a widening to GBP-8.8bn while services (which remain in surplus) narrowed slightly from GBP5.382bn to GBP5.376bn. Overall February’s disappointing data may prove to be a blip and put down to the extremely cold weather during the month. If this is indeed the case and an improvement is borne out in today’s data we believe this would be enough to keep net exports contributing to GDP.
A busy day today economic activity-wise from the US with the releases of April Retail Sales, CPI, May Empire Manufacturing, Business Inventories, TIC flows and May NAHB House Market Index. The USD continues to find support despite the less than perfect performance from stock indices and the negative news on an American banks’ risk management failure leading to $2-3bn loss. Nonetheless this afternoon’s releases will be the key focus initially before thoughts turn back to the Europe.
Elsewhere, Australian Central bank minutes were released overnight and there was no suggestion in the minutes of an imminent rate cut following the recent 50bp.
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