May/Davis spat halted with date
Sterling support wavered amid further speculation that Brexit Secretary David Davis might resign over disagreements with Theresa May on the Northern Ireland issue. The Pound fell from its 10-day peak around 1.3450 against the Dollar to below 1.3400. The Euro strengthened to move above 1.1325. Reports emerged that determining an end date to the “backstop” measure meant a compromise had been agreed and there were no resignations yesterday. Speculation increased that the government position had weakened further with the divisions and that the EU Commission appeared unimpressed with plans.
Bank of England Deputy Governor Dave Ramsden stated that the data supports the view that the Q1 GDP slowdown was temporary and that wages growth is back on the menu. In this context, the ongoing policy tightening is likely to be appropriate, although as always, this will be data-dependent. The rhetoric overall was more hawkish than usual from Ramsden which prevented the Euro from drifting below 1.1365.
US jobless claims were unchanged in the latest week at 223,000, marginally above consensus forecasts and maintaining expectations of upward pressure on wages. US consumer credit data printed below forecasts but had little impact, with expectations of firm consumer spending under the influence of tax cuts and a strong labour market. The Dollar was unable to gain significant support and the Euro consolidated around 1.1800 at market open.
The Euro reached three-week highs after a strong run against the Dollar on Thursday amid further speculation that the European Central Bank (ECB) could make an announcement on ending the quantitative easing programme at next week’s policy meeting. Further comments from other ECB board members, including Weidmann, Hansson, and Knot, who also hinted at an earlier exit from stimulus, added fuel to expectations. The Euro peaked at 1.1840 ahead of the New York open as the US currency retreated.
Italian bonds came under renewed selling pressure late in the European session which undermined Euro confidence to some extent, causing a drift back to just below 1.1800 against the US currency as gains on the crosses faded. Until now, markets had been told the ECB would continue buying €30 billion of European bonds per month until “September or beyond” and economists had begun to suspect the bank might continue the programme until year-end due to low inflation and a recent slowing of economic growth.
Data to watch:
07:00 EUR Trade Balance s.a. (Apr)
07:00 EUR Industrial Production n.s.a. w.d.a. (YoY) (Apr)
09:15 EUR ECB’s Mersch speech SPEECH
13:15 CAD Housing Starts s.a (YoY) (May)
13:30 CAD Unemployment Rate (May)
13:30 CAD Net Change in Employment (May)
18:00 USD Baker Hughes US Oil Rig Count