British Pound Remains Unattractive Amid Political Uncertainty
What’s been happening?
Pound Sterling – UK Markets
The British pound fell to its lowest level since early January vs the dollar on Thursday but staged a modest rebound in the evening to close they day virtually unchanged. Against the euro, the sterling stayed relatively for the fourth straight day this week.
During a scheduled speech on Thursday, David Ramsden, the Bank of England’s Deputy Governor for Markets and Banking, said that he was a “little more pessimistic” about the GDP growth than the latest BoE forecasts. Commenting on the possible Brexit outcomes, Ramsden argued that growth would pick up if Brexit were to go smoothly and that would make further monetary tightening appropriate.
Later in the day, Opposition Labour Party's leader and one of the candidates to replace Prime Minister Theresa May, Jermy Corbyn, told reporters that their priority was to elect a new government while reiterating that they need to do everything they can to prevent a no-deal Brexit. On other Brexit-related headlines, The Daily Telegraph claimed that the Bundestag's foreign affairs committee chair said that Germany would veto an extension to Brexit unless the UK announced a second referendum or a general election by October.
US Dollar – US Markets
The greenback continued to outperform its rivals during the first half of the day but struggled to preserve its strength. On Thursday, the U.S. Bureau of Economic Analysis (BEA) in its second estimate reported that the real GDP in the first quarter was expected to expand by 3.1% compared to the 3.2% announced in the previous estimate.
“Today's estimate reflects downward revisions to nonresidential fixed investment and private inventory investment and upward revisions to exports and personal consumption expenditures (PCE),” the BEA explained. “Imports, which are a subtraction in the calculation of GDP, were revised up; the general picture of economic growth remains the same.”
Other data from the U.S. revealed that pending home sales in April declined by 1.5% on a monthly basis and the weekly jobless claims rose to 215K in the week ending May 24 from 212K in the previous week. Finally, the trade deficit in April widened to $72.12 billion from $71.33 billion in March. Later in the day, Fed Board of Governors Vice Chair Richard Clarida said that the Fed was attuned to potential economic risks that could call for a more accommodative policy. “If global economic and financial developments present a material downside risk, the Fed would take that into account,” Clarida said and added that if inflation shortfall becomes persistent, the Fed would take that into account as well.
Euro – European Markets
The lack of macroeconomic data releases from the euro area caused investors to ignore the shared currency and allowed it to stay unchanged against its major rivals. Commenting on expectations of the EU fining Italy over budget, Italian Deputy Prime Minister Matteo Salvini said that the government will reply to the EU warning letter and provide data to avoid the disciplinary procedure. On the economic performance, Salvini said revenues were higher than expected and added that the economy was “picking up.”
What’s coming up?
UK: The Bank of Englan will release consumer credit, mortgage approvals, and M4 money supply data for April on Friday.
US: The U.S. Bureau of Economic Analysis will publish the Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred gauge of inflation, data. The University of Michigan will release the Consumer Sentiment Index (final) for May.
EU: Retail sales and inflation data from Germany will be featured in the European economic docket on Friday.