Stuttering Sterling slide arrested
With Pound sentiment notably fragile after Thursday’s monetary policy decision and the sharp losses suffered, Sterling attempted to find a baseline on Friday. UK bonds edged higher providing modest protection but the Pound was unable to break above the 1.3600 level against the Dollar. The Euro protected the 1.1365 mark after a weak Sterling effort to regain ground.
CFTC data revealed bets on a Sterling rise are at the lowest level since the middle of March, which means a lesser risk of another Sterling sell off, although stronger data is a prerequisite for any significant rebound. Overnight, Visa reported consumer spending fell by 1.6 percent on a seasonally adjusted basis in three months to April although another survey indicated that the labour market was still tightening with stronger upward pressure on wages. The Euro edged higher on market open with the Sterling again above 1.3550 against the Dollar.
The U.S. dollar has been seen giving up some of the gains posted from earlier in the week by Friday’s close. Economic data on Friday was limited to Canada’s jobs report which was the main highlight. Data showed that the Canadian labor market shed 1,100 jobs against median estimates of an increase of 17.8k jobs. The decline in the jobs in April comes after March’s gain of 32.3k.
The U.S. import price data was also released on Friday which showed an increase of 0.3% following a decline of 0.2% the month before. This was however below the median estimates of a 0.5% increase.
Looking ahead, the economic data is quiet today with the exception of FOMC Member, Loretta Mester who will be speaking at an event today.
There were no significant Eurozone economic data releases during Friday and ECB President Draghi made no references to monetary policy. Market attention tended to focus on Italian political developments with further reports that the 5-Star and Lega parties were edging towards a coalition deal. Italian bonds rallied on the day which helped underpin the Euro.
Much of the Euro’s rise through 2017 was based on the expectation that 2018 would see the ECB take notable steps on withdrawing stimulus based on the view inflation was rising to their 2.0% target. For the Euro, the narrative of fading economic growth rates has become an issue and has been blamed for some of the single-currency’s underperformance over recent weeks. The Euro exchange rate complex is likely to act negatively should this week’s data disappoint as it suggests the ECB will likely delay tightening monetary policy, something that has already been hinted at by key policy-setters.
Overall, Euro long positions, however, were unchanged on the week and at historically high levels, maintaining underlying liquidation pressure. Markets were optimistic that the government would take a pragmatic response which curbed any negative Euro impact as it traded slightly stronger in early Europe on Monday.
Data to watch:
10:00 EUR ECB’s Mersch speech
10:15 EUR ECB’s Lautenschläger Speech
11:45 EUR ECB’s Praet Speech
13:40 USD Fed’s Bullard speech
15:00 EUR ECB’s Lautenschläger Speech
16:15 EUR ECB’s Praet Speech
17:45 EUR ECB Cœuré Speech