Pound on the ropes again
Government borrowing declined to £1.3bn for March, down from £2.1bn in March 2017 and the provisional annual deficit narrowed to £42.6bn (from £46.1bn) which is the lowest annual deficit for 13 years.
Big news from the equities market buoyed the Pound when reports emerged that the Japanese company Takeda Pharmaceutical had increased its £44bn bid for UK listed drugs company Shire Plc. The amount of Sterling that will likely need to be purchased to finance the deal is enough to move the market.
CBI industrial orders were unchanged at 4; domestic orders growth weakened, although new export orders increased at the fastest pace for over 20 years. Sterling secured a correction against the Dollar after finding support close to 1.3920, but a decline in oil prices and dip in risk appetite late on limited the bounce back, and the Euro consolidated around 1.1428.
US consumer confidence beat consensus forecasts yesterday with a rise to 128.7 for April, bouncing back from a poor March reading. This data implies a rebound in the general economic outlook for the second quarter after what was a dismal first quarter. Further, new home sales scored the second-highest score for over 10 years as it rose to an annual rate of 694,000 for March.
Despite the positive data, an acute drop in the Richmond Fed manufacturing index did keep the economy in check but, overall, the data maintained an upbeat sentiment in the US outlook with further upward pressure on prices, implying inflation will rise.
The US benchmark Treasury yields rose above 3% for the first time since January 2014, rising from 2.4% at the beginning of 2018. The resurgence of the Dollar this week can largely be put down to the sharp rise in US yields. Now we’re past the psychological 3% barrier, we could see the Dollar poised for a further advance against the developed world currency basket.
The German IFO index dropped to a 12-month low of 102.1 for April and came up below consensus forecasts. The business expectations component of the index fell to the weakest level since August 2016 and was coupled with the services sector following a similar decline. That said, confidence in the construction sector increased to new record highs.
The data continued the underlying concerns surrounding the German outlook which pushed the Euro lower once again. This gave the Dollar a chance to gain against the Euro as the currency pair pushed below the 1.2200 level as traders looked to protect long positions.
Further, with regards to the upcoming European Central Bank (ECB) rate decision and monetary policy meeting tomorrow, no major decision, or call on future policy, is expected. Should President Mario Draghi decide to give an optimistic outlook, we would expect the Euro to rally. That said, given recent weak economic data, tomorrow presents a chance for Draghi to limit a strong trading single currency and hence why, against the Pound, 1.1400 has found support to push higher.
Data to Watch:
21:15 CAD BoC Governor Poloz Speech