Pound now approaching 12-week highs against the Dollar
Sterling held firm yesterday, pushing close to 12-week highs versus the Dollar and breaking above the 1.4600 level. Rises in commodity and oil prices provided support, especially after UK equity markets were able to make headway, although risk conditions should still be watched carefully.
Bank of England Governor Carney stated that the economy is temporarily slowing, probably due to the referendum, while wages are growing slowly as well. Consumer Confidence printed slightly weaker at -3 from 0 previously, indicating that consumer spending is more fragile. A YouGov EU referendum opinion poll recorded a 1% lead for the leave campaign compared with a 2% lead for the stay campaign last week which may unsettle market confidence.
The Dollar remained under pressure yesterday after underwhelming first-quarter GDP data mixed with a general feeling of caution following the Federal Reserve statement. The Fed had stated slowing domestic growth as one of the main risks to any potential rate hike decision. The US Q1 GDP figure showed the economy grew at an annualised rate of 0.5% against the 0.7% expected, the slowest pace in two years. The US labour market remains strong, however, as initial jobless claims came in at 257k, below the market consensus of 260k.
Cable opened Thursday at 1.4543, but a Dollar sell off pushed the pair through the 1.4600 level in the American session. The Dollar bulls lost more ground in the Asian session, as fears over the US slowdown in growth caused the pair to move through the 1.4640 level overnight. EURUSD continued to move higher as the pair broke through the 1.1400 level overnight, the highest levels seen in two weeks.
German preliminary consumer prices printed at 0.2% for April, cutting the annual increase to 0.1%, but the employment change data surprised with a further decline of 16,000 in unemployment – the seventh successive drop. Spanish inflation data disappointed with a 1.1% annual decline. The consensus is that today’s Eurozone CPI for April will show a drop into deflationary territory again.
Data to watch: 9.30 UK March Mortgage Approvals. 10am Euro April CPI & Core CPI, March Unemployment Rate. 1.30pm US March Personal Consumption Expenditures & Core PCE (month on month and year on year). US Personal Spending. 2.45pm April Chicago Purchasing Managers Index .