‘Sell the fact’ stops short
The British Pound traded within a tight range yesterday as domestic attention set its sights on this week’s Bank of England meeting and an election campaign that’s is starting to gather pace. There are still many market participants that remain sceptical on how the UK economy will deal with a historic break from Europe and what are widely expected to be volatile talks on the terms, whatever the outcome of next month’s vote.
There is no real reason that the Pound should rally at the moment as the risks ahead are still too great and the market is relatively calm with regard to the election. It looks set to be a tough battle for Theresa May to achieve a lot of what she has promised. The Pound couldn’t manage the dizzying heights of 1.3000 versus the greenback and bounced off of resistance at 1.2990 twice over as many days. The Bank of England meets this Thursday, with analysts expecting it to have drawn some comfort from Sterling’s rise over the past month.
The US labour market conditions index recorded an increase of 3.5 for April following a revised 3.6 gain the previous month, which maintains the view of a robust employment market. Labour market strength should bolster the case for a June hike in interest rates. Cleveland Fed President Loretta Mester continued to call for further policy normalisation at the June meeting.
With little in the US calendar, the GBPUSD pair is poised to trade range-bound, with scope to test 1.2900 in the case of a downward correction, without actually affecting the dominant bullish trend.
Post-election Monday proved to be a damp squib as “buy‐the‐rumour, sell‐the‐fact” produced only a mild reversal of Euro gains. German factory orders printed above consensus at 1.0% for March following a 3.5% gain in February. Sentix investor confidence data printed a 9-year high with an increase to 37.4 for May from 23.9 the previous month.
The Euro was unable to gain more support during the day, with further profit taking and a correction as the Dollar secured a wider advance against major currencies; this comes from anticipation of a June Fed rate increase.
Overall confidence surrounding the Eurozone data continued to improve following Macron’s Presidential election victory. There were comments from European Central Bank member Yves Mersch that the bank should adjust its forward guidance given the improved growth outlook, and underlying confidence in the Euro area is likely to remain firmer.
Data to Watch:
7:00am GER EUR Current Account n.s.a. (Mar), Trade Balance s.a. (Mar), Exports (MoM) (Mar), Exports & Imports (MoM) (Mar). 10:30am AUD Budget Release. 11:45pm NZD Electronic Card Retail Sales (YoY) (MoM) (Apr).