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Pound weathers profit-taking

Pound weathers profit-taking

GBP
The Pound held Thursday’s gains before starting Friday by making a concerted effort to break through the 1.4300 mark against the Dollar while the Euro dipped to lows below 1.1587 amid expectations of a UK rate hike in May. High oil prices provided further Sterling support, although risk conditions turned against the Pound as the US market session started and the Pound suffered from profit-taking after strong weekly gains. Sterling retreated to the 1.4240 area against the Dollar while the Euro rose to 1.1685.

Economic data will be key for Sterling sentiment this week, even if UK rate hike expectations stay the same, the economic data will shape expectations for the medium-term outlook. Overnight, Visa reported weak retail spending for March and the weakest first quarter reading for over five years, but Sterling held firm. The Pound opened this morning at 1.4251 against the Dollar and 1.1557 against the Euro.

USD

The preliminary University of Michigan consumer confidence data dropped to 97.8 for April from 101.4 previously with US trade policy concerns having a negative impact. Further, one-year inflation forecasts fell slightly to 2.7%. Finally, the JOLTS job-openings data recorded a small decline, although remaining historically high, to 6.05mn at the end of February.

Outside of the economic data, St Louis Fed President Bullard continued his dovish outlook with comments that rates are already close to a neutral level. On the other hand, Boston head Rosengren backed at least three more US rate hikes this year but further mentioned fears of overheating the economy. Markets continued to price in a more than 80% chance of another rate hike at the June meeting.

This week, retail sales will draw the attention of the market. In terms of the developing situation with Syria, the US-led military strike against Syria was a one-off according to the UK Foreign Secretary Boris Johnson. The US has signalled, however, that it’s ready to punish the Middle Eastern country again if it keeps using banned weapons. The market will likely react quickly if this situation worsens.

EUR

The Euro is trading little-changed on the upside at around 1.2330 against the US Dollar after one-off strikes on Syria conducted by joined military forces led by the US dissipate and the calendar in Europe is weak for the day. German wholesale prices stagnated unchanged in March while increasing 1.5% over the year in March.
Italian President Mattarella stated on Friday that political parties had made no progress in forming a government, reinforcing speculation that another election would be required, but this had little overall Euro impact.

Data to Watch:

13:30 USD Retail Sales ex Autos (MoM) (Mar)
13:30 USD Retail Sales control group (Mar)
13:30 USD Retail Sales (MoM) (Mar)
18:15 USD FOMC Member Bostic speech

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