Flirty with 1.3000
UK unemployment declined to 4.6% in the three months to March, the lowest rate since 1975, despite an increase of 19,400 in the claimant count for April. Average earnings increased 2.4% over the year from 2.3%, in line with expectations, and there was a 2.1% increase excluding bonuses. While the jobs market remains healthy, subdued earnings growth will not add any pressure for Bank of England tightening, especially as the dip in real earning will curb consumer spending.
The Pound peaked at 8-month highs just below 1.2990 before fading while the Euro hit selling interest below 1.1627. Media reports hint that the target for eliminating the budget deficit would be extended until 2025; suggesting an underlying looser fiscal policy which could push the Bank of England towards a tighter policy. Retail sales data will be the main focus today.
The Greenback tumbled across the board yesterday, falling to fresh multi-month lows against several peers, as political turmoil grew in the US due to media reports that President Trump could face the threat of impeachment. Reuters reports emerged on Tuesday evening that Trump had asked his now-dismissed FBI chief James Comey to end the agency’s investigation into ties between former White House national security adviser Michael Flynn and Russia. Former FBI director and prosecutor Robert Mueller has been appointed to lead the investigation into collusion between Trump’s campaign team and Russia.
It is important to note that impeachment of President Trump is unlikely, and this may not be a game-changer for the FX markets. Various risks, implied volatility in FX, rates and equity markets are still at relatively healthy levels, as European political uncertainty has subsided. Nonetheless, increasing doubts over President Trump’s ability to proceed with his economic policies will likely hurt USD momentum for the time being, even though expectations for bold US economic policy had already declined before this.
Later in the US, initial jobless claims data, as well as the Philadelphia Fed index for May, are due out. The expectation is for the Philly Fed index to have fallen, as it has overshot ISM/Markit PMIs, supporting the view that the US manufacturing cycle has peaked.
Eurozone headline CPI inflation printed at 1.9% for April with the underlying rate also unchanged from the flash reading of 1.2%. It was also the highest reading for over 3 years as European Central Bank (ECB) policy remained an important focus.
The latest opinion polls suggested that President Macron’s En Marche party would win the largest share of the vote in the June parliamentary election which helped provide further net support for the Euro.
Data to Watch:
1:30am AUD Employment Change s.a. (Apr), Unemployment Rate s.a. (Apr). 8:30am GBP Retail Sales ex-Fuel (MoM) (YoY) (Apr), Retail Sales (MoM) (YoY) (Apr). 11:30am EUR ECB Monetary Policy Meeting Accounts. 12:30am USD Initial Jobless Claims (May12), Philadelphia Fed Manufacturing Survey (May). 5:00pm EUR ECB President’s Draghi’s Speech.