What’s been happening?

Pound Sterling – UK Markets 

After dropping to its lowest level against the dollar since the first week of January, the British pound staged a late recovery to finish the day flat but posted losses vs the euro for the seventeenth straight day hurt by the ongoing political drama in the UK.

Earlier in the day, Sir Geoffrey Clifton-Brown, treasurer of the 1922 Committee, said that British Prime Minister Theresa May could face a no-confidence vote if she does not announce her resignation date by this Friday. Furthermore, government whip Mark Spencer announced that the vote on the Withdrawal Agreement Bill was not listed in the business for the week of June 3. "We will update parliament on the introduction of the WAB after recess," Spencer told reporters and added that they were planning to publish the WAB in the week of June 3 rather than this Friday. Meanwhile, Prime Minister May’s spokesman said that the PM had no planned announcements this week and repeated that she wanted to ensure that the only way to make sure that the UK left the EU with a deal was to ratify the Withdrawal Agreement.

US Dollar – US Markets

The US Dollar Index rose to its highest level in two years but made a sharp U-turn in the second half of the day to erase all the gains it posted since the start of the week. The heightened geopolitical tensions after U.S. Secretary of State, Mike Pompeo, said that Huawei was “deeply-tied” with the Chinese Communist Parth and added that he believed more U.S. companies would cut ties with the tech-giant.

Moreover, the IHS Markit’s Flash PMI report revealed that the business activity in both the manufacturing and the service sector in the U.S. was expected to expand at a much slower pace in May than they did in April with the Composite PMI slumping to its lowest level in three years and put additional weight on the dollar’s shoulders. Commenting on the data, “Growth of business activity slowed sharply in May as trade war worries and increased uncertainty dealt a further blow to order book growth and business confidence,” Chris Williamson, Chief Business Economist at the IHS Markit said. Other data from the U.S. revealed that new home sales in April declined by 6.9% and the Kansas Fed’s Manufacturing Index fell to 2 in May from 12 in April. 

Meanwhile, Dallas Fed President Robert Kaplan said that he was “agnostic” on whether the Fed’s next rate move should be up and down and concluded that the Fed could remain patient for the time being.

Euro – European Markets

The shared currency rose vs both the pound sterling and the dollar on Thursday. However, the uninspiring macroeconomic data releases from the eurozone suggested that the currency’s action was primarily driven by the market’s reaction to the developments in the UK and the US.

The IHS Markit’s flash data showed that the manufacturing sector continued to contract in Germany and the eurozone in May while the service sector lost some momentum. Assessing the data, “The eurozone economy remained becalmed in the doldrums in May, adding to signs that only modest growth will be achieved in the second quarter. At current levels the PMI is so far indicating GDP growth of only 0.2% in the second quarter,” noted Chris Williamson, Chief Business Economist at the IHS Markit.

In the meantime, the Ifo Expectations Index stayed unchanged at 95.3 in May while the Business Climate Index came in at 97.9 to miss the market expectation of 99.1. Ifo economist Klaus Wohlrabe said that he was not expecting the car industry to stage a significant recovery amid Germany’s weak export dynamics.

What’s coming up? 

UK: The UK’s Office for National Statistics will release the retail sales data on Friday and the CBI will publish its Distributive Trades Survey.  

US:  The durable goods orders will be the only data featured in the U.S. economic docket.

EU: There won’t be any macroeconomic data releases from the euro area.