Euro benefits as Macron tops polls
Downing Street has announced that Theresa May will enact Article 50 by letter to the European Council next Wednesday. In the same briefing a snap general election, aimed at undermining the SNP’s position, has been dismissed.
The Pound held steady yesterday morning, but dipped lower following the Article 50 announcement, retreating back to lows below 1.2350 against the Dollar, while the Euro pushed back below the 1.1500 level.
The raft of UK inflation data published today will be watched closely, particularly the Consumer Price Index which is expected to increase to 2.1% from 1.8%. Failure to hit consensus predictions would dampen expectations of any Bank of England move towards a tighter monetary policy. However, stronger than expected data would increase pressure for a tighter stance.
Eurozone labour costs tempered expectations of upward inflationary pressure as they remain subdued at 1.6% in the year to the fourth quarter of 2016 from 1.5%. Just after the close, German Bundesbank head Weidmann stated that in the current environment the expansive monetary policy is still appropriate.
The Euro strengthened yesterday evening against all of its ten major peers as political concerns eased after a poll showed anti-Europe candidate Marine Le Pen losing ground in the first French presidential debate. Opinion polls have shown Emmanuel Macron emerging as the most convincing of the five contenders in the national debate, ahead of Le Pen.
A stronger reading for the US Chicago Fed National Economic Activity index had little impact as the Dollar is still hampered by last week’s Federal Reserve’s statement failing to live up to hawkish expectations. Chicago Fed President Evans echoed the Fed, stating that the Central Bank won’t accelerate the pace of monetary policy tightening, but he also kept the door open for three rate hikes if conditions warranted it.
The Dollar suffered a small, short-term, aggressive, sell-off against the Euro last night, after Macron won the first French presidential debate, pushing the rate up towards the 1.0750 level. Focus will remain on the US current account data for further momentum.
The Japanese Prime Minister, Shinzo Abe, and German Chancellor Merkel urged the European Union to sign a free trade deal with Japan following nearly four years of negotiations. Negotiations between the European Union and Japan for a free trade agreement began on March 25, 2013, but has faced roadblocks because of disagreements over issues from auto industry regulations to limits on Europe’s food goods.
Both leaders proclaimed the benefits of free trade in an increasingly digital age, stating that,
“Japan and Europe, those who value freedom and human rights and respect democratic rules must act in cooperation…That’s why we must conclude an economic partnership agreement between the Japan and EU in order to express this commitment.”
Data to watch: 9.30am UK Consumer Price Index & Core CPI. Producer Price Index: Input, Output and Core Output PPI. Retail Price Index. Public Sector Net Borrowing. 10.35am Mark Carney Speech. 2.30pm EUR Long Term Refinancing Operation.