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Expectations rising for ECB

Expectations rising for ECB

GBP
With the market focussing on the Bank of England’s (BOE) Super Thursday, investors have seemed reluctant to place big bets ahead of the event. Currently hovering around the 1.2940 level, the GBPUSD pair benefitted from a sharp rise in the British Retail Consortium Like-for-like Sales data for April 2017, coming in at 5.6% year on year. This is a 1% increase from the March reading.

Meanwhile, last week’s upbeat PMI reports underscored a solid British economy, despite continuing jitters over impending Brexit negotiations. As a result, Cable has defied broad-based greenback strength and is extending its short-term upward trajectory, which suggests the trend may follow suit in the long term.

USD

We saw a very strong turn in the Dollar yesterday as the US data turned a little more positive, in contrast to the muted response we saw to Friday’s jobs report. US NFIB Small Business confidence index edged lower to 104.5 for May from 104.7, although it still beat expectations. Job openings increased slightly to 5.74m from a revised 5.68m the previous month, maintaining confidence in the labour market, while the IBD consumer confidence index declined slightly to 51.3 from 51.7.

Kansas City Fed President Esther George stated that an adjustment of monetary policy was of paramount importance given the falling unemployment rate, although reactions were muted given he is a known hawk. Boston head Eric Rosengren stated that a drop in unemployment to below 4% would overheat the economy and prompt higher rates while he favoured beginning to shrink the balance sheet relatively soon. Futures markets indicated that the chances of a June rate increase were around 88%.

EUR

German Finance Minister Wolfgang Schaeuble’s comments that the European Central Bank (ECB) would be likely to start monetary policy normalisation soon failed to prevent the Euro from dipping below 1.0900 against the Dollar. The Euro remained vulnerable to profit taking after hitting strong selling interest above the 1.1000 level following Macron’s Presidential election victory.

There was a further small increase in German bond yields during the day, although US yields also edged higher which limited any improvement in yield differentials in favour of the Euro. ECB President Mario Draghi’s comments will be watched closely for any change of rhetoric on monetary policy.

Data to Watch:
12:00pm EUR ECB President’s Draghi’s Speech. 7:00pm USD Monthly Budget Statement (Apr). 10:00pm NZD RBNZ Interest Rate Decision, Monetary Policy Statement, RBNZ Press Conference.

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