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D-Day for Draghi?

D-Day for Draghi?

GBP
Brexit secretary David Davis’s optimism on negotiations shielded the Pound somewhat, and an increase in bonds yields also helped in a quiet trading session. Markets were wary of the potential month-end selling and overall sentiment remained cautious. Concerns that financial conditions deteriorating create difficulties financing the substantial currency account deficit would push Sterling weaker in order to attract capital inflows.

The Euro faded to around 1.1440 by close of business while Sterling slumped to one-month lows near 1.3920 against the Dollar. Markets will monitor a House of Commons debate on whether the UK should remain in the Customs Union. The ECB policy statement and trend in US bonds yields likely to dominate short-term Pound trading.

USD

The US calendar was sparse yesterday with no significant data releases and an absence of Fed rhetoric ahead of next week’s FOMC policy meeting.

The 2018 surge in US 10 year bond yields, which has now passed 3%, has given the Dollar a strong boost and helped the Dollar index rise by around 2% in the last week alone. Donald Trump’s tax reforms and other fiscal stimuli, coupled with traders betting the Federal Reserve will accelerate the interest rate rises later this year has further helped the US Dollar. Cable closed yesterday 1.3933 whilst 1.2169 against the Euro.

EUR

The Euro remains close to a 6-week low and is towards the lower end of its limited trading band seen so far this year. Markets await the European Central Bank (ECB) meeting today to gauge whether Mario Draghi and his colleagues feel confident enough about the outlook for inflation to end their bond-buying program.

Markets are not expecting any change in ECB policy at today’s meeting and any decision on the bond-buying programme could be delayed until the late-July meeting. The statement and Draghi’s commentary will still be monitored very closely with a particular focus on forward guidance, together with rhetoric on the currency and global trade issues.

Data to Watch:

07:00 GER Gfk Consumer Confidence Survey (May)
12:45 EUR ECB Deposit Rate Decision
12:45 EUR ECB Interest Rate Decision
13:30 USD Continuing Jobless Claims (Apr 13)
13:30 USD Initial Jobless Claims (Apr 20)
13:30 USD Durable Goods Orders (Mar)
13:30 USD Durable Goods Orders ex Transportation (Mar)
13:30 EUR ECB Monetary policy statement and press conference

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