British Pound Extends Slide as Cross-Party Talks Collapse
What’s been happening?
Pound Sterling – UK Markets
Political headlines continued to hurt the British pound on Friday and caused the currency to suffer heavy losses against both the dollar and the euro.
Following the last round of cross-party talks, British Prime Minister Theresa May’s spokesman told reporters it was clear that the government was not going to be able to reach a “complete agreement” with the opposition Labour party. Furthermore, Labour leader Cobryn said that they will continue to oppose Prime Minister May’s deal and further elaborated by arguing that Tories' move to select a new leader had eroded the government's authority. On the other hand, PM May claimed that divisions in the opposition Labour party were the cause of the collapse in and added that she believed that her Conservative Party could still deliver the Brexit, which couldn’t help the currency stage a meaningful recovery.
US Dollar – US Markets
The selling pressure surrounding the major European currencies on Friday allowed the greenback to find demand and lifted the US Dollar Index to its highest level in two weeks. Furthermore, the University of Michigan’s Consumer Sentiment Index in May’s advanced reading jumped to its highest level in 15 years at 102.4 from 97.2 in April and surpassed the market expectation of 97.5 by a wide margin.
“Consumers viewed prospects for the overall economy much more favourably, with the economic outlook for the near and longer term reaching their highest levels since 2004,” the UoM said in its press release. However, the publication also noted that the survey was conducted before the U.S.-China trade conflict escalated earlier this month.
Meanwhile, several Chinese news outlets reported that China was planning to suspend trade negotiations if the U.S. failed to show "sincerity" in the next round of talks in Beijing, suggesting that the trade dispute is unlikely to get resolved anytime soon. Moreover, the fact that the Trump administration announced that it has delayed its decision on imposing tariffs on European car imports made it clear that the U.S. doesn’t want to fight the trade war in multiple fronts.
Euro – European Markets
Although the data published by the Eurostat on Friday revealed that the core Consumer Price Index, which excludes volatile food and energy prices, ticked up to 1.3% in April to come in slightly higher than the market expectation, the shared currency struggled to stay resilient against the dollar. The core CPI, on a monthly basis, rose 0.9% to match analysts’ estimate. Other data from the eurozone revealed that the construction output declined by 0.27% on a monthly basis to bring down the annual growth rate to 6.3% from 7.6%.
Earlier in the day, Italian Deputy Prime Minister (PM) Salvini told CRC Radio that his government wanted to change the EU’s banking rules arguing that the EU was “custom-designed” for Germany.
What’s coming up?
UK: There won’t be any macroeconomic data releases from the UK on Monday.
US: The U.S. economic docket will feature the Chicago Fed’s National Activity Index. FOMC Chairman Powell and Vice Chair Clarida will be delivering speeches.
EU: The European Central Bank Eurostat will release its current account figures on Monday and Destatis will publish Germany’s Producer Price Index (PPI) data.