UK Savings fall to record low
UK GDP data for the fourth quarter of 2016 remained at 0.7% which had no major impact. But a decline in savings rate to a record low increased concerns surrounding the spending outlook and structural weaknesses. The fourth-quarter current account declined to £12.1bn from £25.7bn previously which helped cushion sentiment to some extent.
EU Council President Tusk stated that it was not possible to run EU exit talks and future trade deals in parallel. The UK currency strengthened from late in the European session with a reduced potential for month-end selling and notable evidence of position adjustment, especially as Sterling had rallied against the dollar during the first quarter. The UK currency moved to 1.2550 against the US currency as the Euro retreated sharply to below the 0.8500 level.
The latest Commodity Futures Trading Commission (CFTC) data registered only a slight decline in the number of short Sterling positions as the total stayed close to record highs. This will maintain the potential for a position squeeze as the UK currency held just below 1.2550 on Monday.
The dollar wobbled in overnight trading last night as some lacklustre U.S. data and comments from Federal Reserve officials gave investors few catalysts to build on their U.S. currency exposure. The dollar index, which tracks the U.S. currency against a basket of six major rivals, edged up slightly from last week, where it reached its softest level since November 2011. This happened in the wake of U.S. President Donald Trump’s failure to get a health care reform bill passed last month.
This week, investors wait out for Friday’s non-farm payrolls report, and a worse-than-expected reading could push the dollar weaker to a larger extent than a better-than-expected reading would push it stronger, underscoring the already cautious expectations on the pace of further U.S. rate hikes this year.
There was a mixed reading for German retail sales on Friday, but labour market data remained strong with a slowdown in unemployment of 30,000 in March following a 14,000 fall in February. This maintained confidence in the growth outlook.
The Euro-zone inflation data was significantly worse than expected, with a decline from 2.0% to 1.5%, compared with market participants expectations of 1.8%. There was also a decline in the core inflation rate from 0.9% to 0.7% and the lower than expected readings increased confidence that the European Central Bank (ECB) would maintain a very accommodative monetary policy. This helped the single currency weaken against the pound over the afternoon on Friday.
Iceland is considering pegging its crown to a major currency, most likely the euro, its finance minister said on Saturday amid concerns the small North Atlantic nation’s economy is as risk of overheating.
Nearly a decade after a crash that brought down its banking system, Iceland has bounced back as increasing numbers of tourists flock to its geysers and drink in the trendy bars of the capital Reykjavik. But worries about overheating have increased. Economic growth was 7.2% last year while the crown gained around 15% against the dollar. The currency, though volatile, is little changed since then.
Data to watch: 08:15am EUR CHF Real Retail Sales (YoY) (Feb). 08:55am EUR GER Markit Manufacturing PMI (Mar). 09:00am EUR ITL Unemployment (Feb). 9:00am EUR Markit Manufacturing PMI (Mar). 09:30am GBP Markit Manufacturing PMI (Mar). 11:00am EUR Unemployment Rate (Feb), Producer Price Index (YoY) (Feb). 2:45pm USD Markit Manufacturing PMI (Mar). 3:00pm USD Institute for Supply Management (ISM) Prices Paid (Mar) and ISM Manufacturing PMI (Mar), Construction Spending (MoM) (Feb).