The Dollar gained sharply yesterday, against the Euro, sliding to near the 1.1200 mark. Although there was no clear rationale for the move, there was a suspicion that the Federal Reserve (Fed) would not be as dovish as expected previously which helped boost demand for the US currency.
The US Philadelphia Fed non-manufacturing index declined slightly to 21.0 from 21.4 previously, although the rate of growth in new orders increased slightly. There was a slight easing of upward pressure on wages and prices, although both components remained strong in historic terms which suggested solid growth. US new home sales data was above consensus forecasts at an 18-month high while the Richmond Fed April PMI index declined to 3 from 10 previously as new orders declined and the labour market was slightly softer.
Overall, there were increased expectations that the US economy would out-perform Europe and the dollar with the Euro unable to make headway. The dollar maintained a very firm tone this morning too.
Sterling gained ahead of the US open with support from buoyant oil prices assisting a move above 1.3000 on the Dollar and 1.1560 on the Euro, before fading. Dollar strength reversed the move with the Pound sliding to 2-month lows below 1.2950 and the Pound also lost ground against other major peers.
Sterling sentiment eroded on fading expectations of a government/Labour Party Brexit compromise and the threat of a General Election amid strong pressure on Prime Minister May to resign. Business surveys also indicated that confidence remained fragile due to the uncertain political climate. The pound remains below 1.2950 against the Dollar this morning as on-going UK political concerns provide headwinds. Government Borrowing figures are the only UK data due out today.
A very strong day for the Dollar exerted significant downward pressure on the single currency. Volatility was low and there was a lack of support for low yield assets which in turn also meant a lack of support for the Euro. Concerns over political instability in Italy, Italian yields moving higher and that S&P could announce a credit-rating downgrade this week. Versus the Dollar, the Euro slid to below 1.1200 off the back of disappointing Euro-zone Consumer Confidence numbers.
Today sees business climate figures out of Europe which will be of some interest to trades. French business climate for April is swiftly followed by German IFO numbers which will cause some volatility. At the same time, Italy releases it’s trade balance figures, the EU releases its Economic bulletin and the Swiss release the ZEW survey. The data is rounded off by the UK’s public sector net borrowing for March and news around Brexit will also be of interest.
Data to watch
09:00 EUR German IFO Current Assessment (Apr), IFO Business Climate (Apr), IFO Expectations (Apr), Eurozone Economic Bulletin.
CHF ZEW Survey – Expectations (Apr)
09:30 GBP Public Sector Net Borrowing (Mar)
12:00pm USD MBA Mortgage Applications (Apr 19)
15:00 CAD Bank of Canada Monetary Policy Report, BoC Interest Rate Decision (Apr 24) & Statement
15:15 CAD BoC Press Conference