Dollar trumps Pound at the last
The Pound remained under pressure on Friday morning with Carney’s change in expectations for a May rate hike casting a dark shadow. Friday saw a low of 1.4001 as UK data last week printed well below expectations, notably so in employment, inflation, and retail sales figures. A Bank of England rate hike in May is still the market forecast that will drive Sterling higher in the weeks ahead. Should it start to look more likely, a large proportion of the ground lost against the Dollar should be reclaimed.
Bank of England Monetary Policy Committee member Michael Saunders said that average earnings printed as expected, with inflationary factors appearing to be shifting away from external to domestic. The House of Lords voted overwhelmingly in favour of the UK remaining in the customs union, in stark contrast to the Governmental position. With only Public Sector borrowing data on Tuesday and Consumer Confidence and GDP on Friday, Sterling’s path will be determined by its peers this week.
The US Dollar finished last week on a high and hopes to add to the recent gains seen. The pick-up in the sentiment is a response to mitigated concerns on the geopolitical front, as well as in the US-China trade conflict lending support to the buck via a higher USDJPY, as outflows from the Japanese safe haven has accelerated as of late.
Treasury yields continue to breakout which, in turn, has caused a key shift in sentiment seen on the US Dollar. The big question is whether this move on yields will be sustainable, and hence whether the Dollar can continue to climb.
The US 10-year yield is now at its highest since January 2014, having broken above 2.95%. It is now within sniffing distance of the psychological 3%. The Dollar strengthening is showing across the major currency pairs whilst the sharp rise in bond yields is creating nervousness in equity markets, with Wall Street slipping for the past three sessions and now threatening the recovery of recent weeks.
Data-wise later in the North American session, Existing Home Sales during last month are due seconded by the Chicago Fed National Activity Index, while Markit will publish its preliminary Manufacturing PMI for the current month.
At the back end of last week, German PPI rose 0.1% m/m in March and increased 1.9% y/y whilst the European Commission’s economic confidence indicator moved higher, surprising the markets to 0.4 in April.
Comments from the European Central Bank (ECB) President Mario Draghi and the Bundesbank President Jens Weidmann implied that they both expect some downturn for the Eurozone economy, but remain in positive spirits for the growth outlook with a robust expansion. Further, they both agree on a tip-toe approach to any changes at the upcoming ECB meeting Thursday.
The main event for this week will be the policy meeting Thursday of the ECB. The central bank is currently waiting for further assurance the region is recovering before calling an end to the quantitative easing programme.
Data to Watch:
08:30 GER Markit PMI Composite (Apr)
08:30 GER Markit Manufacturing PMI (Apr)
08:30 GER Markit Services PMI (Apr)
09:00 EUR Markit Services PMI (Apr)
09:00 EUR Markit Manufacturing PMI (Apr)
09:00 EUR Markit PMI Composite (Apr)
13:30 USD Chicago Fed National Activity Index (Mar)
14:45 USD Markit PMI Composite (Apr)
14:45 USD Markit Services PMI (Apr)
15:00 USD Existing Home Sales (MoM) (Mar)
15:00 EUR ECB Cœuré Speech
20:30 CAD BoC Governor Poloz Speech