Market shrugs off terror attacks on democracy
The Bank of England Agents’ summary of business conditions suggested that the UK economy was continuing to grow moderately. Despite a weaker retail sales report there was some evidence of improving investment intentions based on demand growth and uncertainty reducing on economic prospects.
Sterling was constrained below 1.2500 against the Dollar and dipped to test support below 1.2450. Against the Euro, the Pound tested support at 1.1500 after finding resistance near 1.1560.
Sterling dropped off slightly on reports of the terrorist attack in Westminster, although there was limited overall market impact. Today’s retail sales data will be watched closely for further evidence of a sustained slowdown in consumer spending. Bank of England member Broadbent’s comments will also be significant following unexpectedly high inflation figures.
The Greenback paused its recent descent and held steady as investors shift their focus to today’s vote on the US President Donald Trump’s American Health Care Act in the House. The fate of the health care bill will be the first major legislation decision of the new Trump administration. It will also drive market expectations over Trump’s ability to push through the promised pro-growth economic policies.
The US Dollar Index (a measure of the value the Dollar relative to a basket of foreign currencies) has shed the majority of its gains post the Presidential election. This has not been helped by major disappointment coming from the not so hawkish Federal Reserve (Fed) monetary policy outlook which signalled the start of a gradual pace for the rate-tightening cycle. Hence, today’s vote could prove to be a game-changer for the US Dollar’s near-term trajectory.
Today, the market will also be focussing on the upcoming speeches from the Fed Chair Janet Yellen and Minneapolis Fed President Neel Kashkari – the sole dissenter against the Fed rate hike decision last week. A dovish tilt could lead to further depreciation of the Buck.
There were no major Eurozone developments or economic data yesterday. The most recent opinion polls still suggest that National Front leader Le Pen and centrist Macron would contest the second round in the Presidential election run-off. There are also suggestions of fading support for Le Pen, which provided some support to the Euro.
The Japanese Yen’s recent rise against the Dollar has defied some market participants, but a stronger currency may actually support Japan as it confronts the US administration on matters of trade and foreign exchange. The Federal Reserve’s explicit plan to raise interest rates this year, in stark contrast to the Bank of Japan’s accommodative monetary policy, should be a reason for investors to move out of the Yen and seek a higher yield in the Greenback, in the so-called carry trade.
However, a larger number of investors are having doubts over President Donald Trump’s economic stimulus plans which have hurt the Dollar in recent weeks. Meanwhile, Japanese Prime Minister Shinzo Abe, now in a rare fifth year as leader, is battling scandals on two separate issues, driving funds into the “safe haven” Yen.
Data to watch: 7am EUR German Gfk Consumer Confidence Survey (Apr). 9am EUR Economic Bulletin. UK GBP Retail Sales MoM & YoY Retail Sales Ex-fuel MoM & YoY. 12pm US Fed’s Yellen Speech. 12:30pm US Initial Jobless Claims. 2pm US New Home Sales MoM + NHS Changes MoM. 2.30pm EUR Targeted LTRO. 3pm EUR Consumer Confidence March.