The long goodbye
The Pound drifted back down to pre-Bank holiday levels during Tuesday morning, failing to gain support from the markets re-opening. Weaker oil prices and weaker risk appetite globally contributed to the malaise. Brexit talks between the government and the Labour Party resumed and the Prime Minister met with the Chair of the 1922 committee. Later, the government announced that the UK would take part in the European elections on May 23rd, followed by Theresa May standing down as party leader and relinquishing her premiership in September.
After falling to lows below 1.3050 on the Dollar, the Pound staged a modest recovery and the Euro made marginal gains. The British Retail Consortium retail sales data for April suggested solid spending after a 3.7% like-for-like annual increase, although Easter will likely have influenced the results. Uncertainties surrounding the global trade outlook hampered trading activity and delayed longer-term investment decisions, leaving the Pound circa 1.3070 on the Dollar and 1.1650 on the Euro at market open.
The currency market stayed inside tight ranges yesterday morning, ignoring threats of new trade taxes and growing uncertainty over the direction of US-China trade talks.
The Dollar index finished the day in positive territory (+0.15%), supported by strong local economic fundamentals. The market is waiting on crucial US inflation numbers due for release towards the end of this week. Oil prices, on the other hand, continue to trade lower after soaring nearly 36% this year.
The US-Sino negotiations are expected to be the focus of attention, and in the absence of top tier data, the market is vulnerable to tweets and noises from @RealDonaldTrump and @POTUS.
In its Spring 2019 Economic forecast, the European Commission lowered its GDP growth forecast to 1.2% for 2019 and 1.5% for 2020. This exerted some pressure on the single currency and it lost ground against the Dollar falling to 1.1170. Most of the fear surrounded Italy, with a growth projection of 0.1%, reinforcing market uncertainty over its debt level. There was a slight respite for the Euro when they caveated this by saying they expected growth to bottom out in 2019, stopping the Euro falling too far.
Today is Victory in Europe day in France so no data is due to them. Germany sees industrial production and the UK is due to release house prices. The Bank of England’s (BofE) Ramsden speaks but perhaps the most interesting news today will be European Central Bank (ECB) President Draghi’s speech around lunchtime.
Data to watch
03:06 CNY Exports (YoY) (Apr)
03:06 CNY Imports (YoY) (Apr)
03:06 CNY Trade Balance USD (Apr)
03:13 CNY Exports (YoY) CNY (Apr)
03:15 CNY Imports (YoY) CNY (Apr)
05:45 CHF Unemployment Rate s.a (MoM) (Apr)
06:00 EUR Industrial Production s.a. (MoM) (Mar) (Germany)
08:15 GBP BoE’s Ramsden speech
11:30 EUR ECB’s President Draghi speech
12:30 USD Fed’s Brainard speech