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Pound Power Prevails

Pound Power Prevails

GBP
Sterling maintained a strong position yesterday, extending recent gains to fresh three-week highs near 1.4300 against the Dollar and 1.1587 against the Euro in the thick of expectations for a May rate hike.

Further, high oil prices continue to support Sterling, and the strong run has helped the Pound claim the top spot as the best-performing currency this year of the G10 group of rich nations.

With the eyes now watching for a retracement, key economic data this week will be important for Sterling sentiment. Even if expectations for the Bank of England in May remain constant, the data will sculpt the path for the medium-term outlook. Today, the latest UK unemployment and wage data are due, with the latest inflation figures tomorrow.

USD

The US Dollar has come under notable pressure this week despite the latest release of US retail sales. The data showed consumer spending rising faster than expected with an increase of 0.6% for March. Further, underlying sales met expectations with a second successive 0.2% monthly increase but this failed to give the Dollar support.

Despite positive retail sales, the New York Empire manufacturing index for April dropped to 15.8 from 22.5 the previous month. Overall pricing pressures remained strong, however, with businesses expecting further strong improvements in both prices paid and prices received.

Outside of the economic data, Minneapolis Fed President Kashkari shifted his stance on the inflation target, commenting that fiscal stimulus supported the case for gradual interest rate hikes. The usual dovish voice from Kashkari will increase speculation over recent sentiment for three further rate increases this year. Finally, New York Fed President Dudley echoed Kashkari with comments that three or four rate hikes were likely this year.

EUR

The Euro made headway against the Dollar yesterday despite the yield gap between US and German two-year bonds continuing to expand to 30-year highs as the two monetary policy outlooks diverge. Slowing inflation underpins the European Central Bank’s (ECB) reluctance to remove the stimulus but the single currency made gains to just below 1.2400.

ECB chief economist Praet, in a speech yesterday, echoed previous remarks that the monetary policy needed to be patient, prudent and persistent. The German investor sentiment indicator due today is expected to confirm the continuing slowdown as the trade wars and strong Euro agitates the expectations of a rosy economic future.

Data to Watch:

09:30 GBP Average Earnings excluding Bonus (3Mo/Yr) (Feb)
09:30 GBP Average Earnings including Bonus (3Mo/Yr) (Feb)
09:30 GBP ILO Unemployment Rate (3M) (Feb)
09:30 GBP Claimant Count Change (Mar)
10:00 EUR ZEW Survey – Current Situation (Apr)
10:00 EUR ZEW Survey – Economic Sentiment (Apr)
13:30 USD Housing Starts (MoM) (Mar)
13:30 USD Building Permits (MoM) (Mar)
14:15 USD FOMC Member Williams speech
14:15 USD Industrial Production (MoM) (Mar)
14:15 USD Capacity Utilization (Mar)
15:00 USD Fed’s Quarles speech
16:00 USD FOMC Member Harker Speech
22:40 USD FOMC Member Bostic speech

 

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