The US dollar dropped from its recent highs overnight as fears that trade relations between the US and China could worsen helped soured risk sentiment and led to a flight to safe havens. Equity markets fell sharply and safe haven currencies including the Japanese yen and Swiss franc moved higher. The greenback also suffered after data released yesterday showed that US factory activity fell, partly due to the ongoing trade uncertainty. Preliminary US manufacturing purchasing managers’ index fell to 50.6, which was the lowest recording since 2009, suggesting a slowdown in the US economy.
The pound remains in the doldrums, testing fresh lows against both the euro and greenback yesterday as the market awaits the fate of UK Prime Minister Theresa May. Traders see little reason to buy the pound these days and cable traded within a whisker of 1.26 yesterday whilst GBPEUR managed to find a little support just above 1.13. Theresa May is due to announce a timetable for her resignation as leader of the Conservative Party and PM later today, clearing the way for a new leader to navigate the Brexit process. She is due to meet with Sir Graham Brady, the Chairman of the 1922 Committee of Tory backbenchers today and will remain in office whilst her party elect her successor in the coming weeks.
EURUSD has traded with a range of 1.11 to 1.12 all week and fell yesterday morning following mixed data from Germany and the wider eurozone. The composite purchasing managers’ index, which surveys businesses in the bloc came in slightly higher than the previous month with a print of 51.6, up a touch from the previous recording of 51.5 in April. However, slowing global demand, the trade dispute and uncertainty over Brexit weighed on the manufacturing sector where the PMI dropped to 47.7 from the previous month’s 47.9. The downturn in manufacturing was also felt in Germany where their index fell deeper into contraction territory at 44.3 down from 44.4 in April and the second weakest reading in almost seven years.
Later this morning we await the release of UK Retail Sales for April, although traders will probably take more notice of the news coming out of Westminster through out the day for clues on the direction of the pound.
Enjoy the long weekend.
The US Federal Reserve released the minutes of its last policy meeting yesterday, with officials confirming that their patient approach to interest rate moves would be appropriate “for some time.” The comments underline the markets current thinking and reinforced the message from Chairman Jerome Powell during his post-meeting conference when he said that the level of interest rates was appropriate for now and there was not a strong case to move in either direction. The US dollar and treasuries maintained gains after the comments, and Fed Funds futures still show that traders are pricing in an interest rate cut later in the year.
The pound fell across the board yesterday as pressure continues to mount on UK Prime Minister Theresa May to resign. GBPUSD fell to a four-month low of 1.2624 as May’s premiership hangs by a thread with her continuing to lose support (and ministers) amid a growing revolt over the ongoing debacle that is – Brexit. The PM lost her 36th minister yesterday when Andrea Leadsom, the leader of the Commons quit yesterday, with many believing that May will announce her departure from Number 10 as early as tomorrow morning. With her Conservative Party likely to face a drubbing in the European Elections today, her premiership is now likely to now be measured in days (or hours) rather than weeks.
The pound shrugged off the release of April inflation data yesterday morning, as the market continues to sell the pound, with the next level of support in cable seen at 1.2616 ahead of January’s low of 1.2409. Inflation edged above the Bank of England’s 2% target last month, with rising energy prices helping to push the consumer price index to 2.1% in April – the first time its has breached the 2% level since last November.
Ahead today we look forward to the release of euro area PMI’s, which are expected to improve only slightly from last month. The manufacturing sector continues to struggle across Europe, and risk remains tilted to the downside and a disappointing print could push EURUSD back towards the 1.11 support.
The pound screamed higher against both the US dollar and euro late yesterday afternoon when it was announced that UK Prime Minister was releasing details of a new Brexit deal at 4pm. GBPUSD traded through 1.28 and GBPEUR touched 1.1460 before both fell sharply back again when it became clear that May was making a desperate gamble to get her Brexit deal through Parliament. Her Conservative colleagues are expected to urge her to abandon what they described as a “doomed and irresponsible” last throw of the dice. In an offer aimed at Jeremy Corbyn’s Labour Party the embattled Tory Leader promised to give MP’s a vote on whether to call another referendum - if they backed her deal. Many of her loyal supporters have turned against her and leadership challengers Boris Johnson and Dominic Raab both reacting negatively to the proposal. Johnson tweeted that the deal was “directly against our manifesto – and I will not vote for it.” May is due to press ahead with a House of Commons statement today, outlining the 10-point deal, and currently she remains committed to a vote in Parliament in the first week of June. However, she is not expected to get her deal passed leading to further uncertainty with another General election looking increasingly likely.
Later this morning the attention in the UK shifts briefly away from Brexit as we look forward to the release of inflation data for April. Headline CPI is expected to increase to 2.2% from 1.9%, whilst core CPI is forecasted to tick higher to 1.9% versus last month’s 1.8%.
EURUSD remains rangebound as we await the release of the Federal Reserve minutes later this evening ahead of key PMI releases for the eurozone tomorrow morning.
The major currency pairs were mainly range bound overnight, however risk sentiment remains fragile as the trade war risk continues to dominate the market after the Chinese ambassador to the European Union warned that China could retaliate against the US after the White House blacklisted Huawei Technologies. The US dollar is broadly unchanged against both the pound and euro as the market took a speech from Federal Reserve Chairman Jerome Powell in its stride. Powell gave a brief but upbeat assessment of the US economy, saying “despite crosscurrents, the economy is showing continued growth, strong job creation, and rising wages, all in a context of muted inflation pressures.” Nothing particularly new there for the market to focus on, and the attention now shifts to the release of the minutes of the last FOMC meeting, which are due to be released tomorrow.
The pound continues to struggle against both the euro and the greenback, trading near recent lows as Brexit continues to weigh on sentiment. UK Prime Minister Theresa May remains on course to try to push her hugely unpopular deal through Parliament next month, but her Conservative party colleagues continue to jostle for position to take over her leadership role. The pound is finding some support around 1.27 against the greenback and 1.14 against the single currency as the market is fearful that May’s successor could push for a hard Brexit which will be the worse case scenario for both the pound and UK business.
The Australian dollar slipped against the greenback overnight after Reserve Bank of Australia Governor Philip Lowe said that he would consider cutting interest rates at next month’s policy meeting in an attempt to boost hiring. He said, “A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target.”
Today is a fairly light day for data with just the release of EU Consumer Confidence for the eurozone this morning and April Existing Home Sales for the US due this afternoon.
The US dollar remains firm against both the pound and euro this morning after posting further gains late on Friday following the release of better than expected US data. The University of Michigan consumer sentiment surged to a 15 year high signalling a welcome relief from the ongoing trade uncertainties and helped push GBPUSD through key support at 1.2740 and EURUSD below 1.1150.
It is a busy week for the markets, with several key data releases and political events as we look to see if the eurozone’s first quarter performance was sustained as we await the release of PMI surveys and Germany’s IFO data on Thursday. The European Central Bank releases the minutes of its April meeting, when investors will be analysing the release for further clues on the next round of targeted longer-term refinancing operations as well as any possible measures to mitigate the effects of negative interest rates. We also have the European elections later this week with voters in the European Union heading to the polls from 23-26 May to elect a new European parliament. As we all know, the Brexit delay means that we in the UK are required to take part in the election as currently we remain an EU member state.
The pound and the UK economy will also be back in the headlines this week. As well as the ongoing Brexit debacle to consider, we also have a series of economic data releases to chew on starting with the release of both CPI and PPI inflation data for April on Wednesday. This will be followed on Friday by the release of Retail Sales where the market will be interested to see if there was a bounce in sales with consumers stocking up in preparation for a no deal Brexit at the end of March.
Elsewhere, the Australian rallied by the most in over three months after the Liberal-National coalition was re-elected in a surprise election victory.
Have a good week.
The US dollar gained against most of its G10 peers after the release of better than expected US data yesterday afternoon, with the dollar continuing to benefit from the ongoing trade tensions. April housing starts came in higher than expected, weekly jobless claims fell, and the Philadelphia Fed May business outlook survey painted a positive picture, rising to 16.6 against an estimate of 9.0, and an improvement of the previous print of 8.5.
The pound was one of the biggest losers against the greenback, falling for the ninth day in a row to a fresh three month low. GBPUSD dropped to within a whisker of the mid-February low of 1.2773 with political tensions in the UK continuing to drag sterling lower. For the past few months sterling has traded within a narrow band against the euro, sticking within a range of broadly 1.15 to 1.18. That range broke on the downside yesterday, as the market fell below 1.1450 for the first time since February as Brexit headlines pushed the pair lower. UK Prime Minister Theresa May said that she would set out her departure date after she attempts to get her Brexit deal through Parliament at the beginning of next month. With approval of the vote looking unlikely, and a leadership challenge on the cards, the market is pricing in a higher probability that the UK will leave the EU without a deal. Meanwhile, Boris Johnson threw his hat in the ring, confirming that he would stand for the Conservative Party leadership.
The euro also fell against the resurgent US dollar, with the single currency trading close to recent lows around 1.1170, weighed down by Italian politics and the ongoing US-China trade situation. Whilst it is unlikely to be a market mover, later this morning we await the release of April inflation data for the eurozone. This is followed this afternoon by the release of the University of Michigan Index, which again is not a tier one data release.
Elsewhere, China’s Central Bank the PBOC has just announced that it will not let the yuan weaken past 7.0 against the US dollar. This level has been a line in the sand for markets and the confirmation has led to a sharp retracement in the yuan.
Yesterday was a volatile day for the US dollar as it whipsawed against both the pound and euro following weaker than expected US data as trade concerns continue to influence global markets. Manufacturing output in the US fell by 0.5% in April against expectations of a gain, whilst Industrial Production also dropped for the third time in four months. The data follows a drop in Retail Sales which fell by 0.2% last month against a forecast of an increase of 0.2%. The greenback gained against the pound as GBPUSD fell through key support to trade as low as 1.2827 before bouncing back slightly overnight.
EURUSD found some support late yesterday after US President Donald Trump said he will delay a decision on whether to impose tariffs on foreign vehicle imports. A decision was due to be announced this weekend, but Trump’s administration plans to announce a delay of up to six months. The single currency gained as this should be good news for German car makers who are facing US import tariffs of up to 25%. Data released yesterday morning showed that the German economy grew in the first quarter of the year, with GDP rising in line with expectations at 0.4% between January and March.
Elsewhere, the Aussie dollar fell to its lowest level in four months against the greenback after disappointing Australian jobs data. The jobless rate increased to an eight-month high of 5.2% in April as more people looked for work, underscoring extensive slack in the labour market and increasing the chance of an interest rate cut from the Central Bank.
This afternoon we await further data releases from the US which include the weekly initial claims report, April housing data as well as the Philly Fed Business Outlook for May.
Global markets rebounded slightly overnight after US President Donald Trump struck a more optimistic tone about the prospect of a trade deal with China, however the President once again turned his attention to the Federal Reserve in a series of tweets. An advisor to Trump said that talks had not broken down and the President tweeted “when the time is right we will make a deal with China”. He also said, “China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing,” adding “If the Federal Reserve ever did a ‘match’ it would be game over, we win!” The comments came at a worrying time for China, after disappointing data was released overnight with Industrial output and retail sales both slowed putting further negative pressure on the economy.
The pound shrugged off mixed UK employment data yesterday and continues to be buffeted by ongoing Brexit worries, the global slowdown in growth and the continued trade woes. The unemployment rate dropped slightly, and the employment rate remained steady signalling that the labour market continues to remain resilient despite Brexit uncertainty. However, earnings growth slipped from its recent highs after it picked up in the latter part of last year, recording an increase of 3.3% in the year to March, which was a touch below the 3.4% that was expected. The pound slipped against both the US dollar and the euro throughout the day and once again the attention shifts back to Brexit. UK Prime Minister Theresa May has set a date for the next (final?) Brexit showdown as she yesterday confirmed that she would bring her deal back to Parliament at the start of June.
The euro has edged lower as Italian bonds dropped, pushing yields higher on renewed fears that the country’s deficit will breach EU limits. EURUSD fell but is currently finding support around 1.12 as the market this morning looks forward to the release of German and eurozone Q1 GDP data. This afternoon the attention shifts to the US as we await Industrial Production and Retail Sales data for April.
Equity markets fell and safe have currencies benefitted as China escalated the trade war with the US yesterday by raising tariffs on USD 60 billion of American goods. This comes despite US President Donald Trump warning “my many friends in China that China will be hurt very badly if you don’t make a deal. You had a great deal, almost completed, and you backed out! China should not retaliate – will only get worse!” You have to question Trump’s negotiating style, but it fell on deaf ears in Beijing as they announced that they would raise duties on imports on USD 60 billion from 1st of June responding to “US unilateralism and protectionism”. China has deliberately targeted farm products, as the US farming community remains a heavy supporter of Donald Trump.
The US dollar had a mixed response to the escalation as the greenback gained against EM and commodity currencies but fell against traditional safe have currencies such as the Swiss franc and Japanese yen. US treasuries were also nervous, with the yield curve between three months and ten years inverting, which is considered as a signal that a recession may be on the cards.
GBPUSD has once again slipped below the key 1.30 level as the market awaits the UK employment and earnings data a little later this morning. Brexit uncertainty continues to limit any sterling gains, and Prime Minister Theresa May gathers her cabinet later today seeking a way forward on negotiations as cross-party talks have achieved nothing in the last six weeks.
EURUSD was also dragged lower by the US-China trade uncertainty, and barely moved this morning following the release of German CPI data which came in broadly as expected. The market is awaiting the release of the German ZEW survey for clues on the strength of the eurozone’s largest economy. Initial resistance is seen at 1.13 and key support should be found around the 1.1210-20 area where several moving averages converge.
*The arrows indicate how the base currency performed against the counter currency overnight. This document is for information purposes only and does not constitute any recommendation or solicitation to any person to enter into any transaction or adopt any trading strategy, nor does it constitute any prediction of likely future movements in exchange rates or prices or any representation that any such future movements will not exceed those shown on any illustration. All exchange rates and figures appearing are for illustrative purposes only. You are advised to make your own independent judgment with respect to any matter contained herein.