What’s been happening?

Pound Sterling – UK Markets 

Disappointing macroeconomic data releases from the UK on Monday weighed on the British pound and caused it to start erasing last week’s gains against the dollar while falling to its weakest level vs the euro since the second week of January.

The UK’s Office for National Statistics reported that the manufacturing production and the industrial production declined by 3.9% and 2.7% on a monthly basis in April and dragged the annual rate down to -0.8% and -1%, respectively. Other data revealed that the trade deficit narrowed to £2.740 billion from £5.408 billion in May and the real GDP came in at -0.4% to post its second straight monthly contraction. Commenting on the data, “GDP growth showed some weakening across the latest 3 months, with the economy shrinking in the month of April mainly due to a dramatic fall in car production, with uncertainty ahead of the UK’s original EU departure date leading to planned shutdowns,” said Head of GDP Rob Kent-Smith.

Later in the day, Bank of England rate-setter Michael Saunders downplayed today’s GDP data by reminding that the BoE had repeatedly said that the data in the near-term was expected to be volatile and said that the output gap had closed and now there were upside risks. Regarding the policy outlook, Saunders argued that the BoE didn’t need to wait for Brexit to get resolved to act on the interest rate. “Any rate hikes will be limited and gradual,” Saunders added to echo BoE Governor Carney’s comments. 

US Dollar – US Markets

Following Trump administration’s decision to cancel tariffs on Mexican imports after reaching an agreement, the US Treasury bond yields staged a decisive rebound on Monday and helped the US Dollar Index, which tracks the dollar’s value against a basket of six major currencies, retrace a portion of last week’s drop. The 10-year reference rose 2.5% on the day and the US Dollar Index snapped a two-day losing streak. The only data from the U.S. on Monday revealed that JOLTS job openings decreased to 7.449 million from 7.474 million and was largely ignored by the market participants. 

Euro – European Markets

In the absence of macroeconomic data releases from the eurozone, headlines surrounding the European Central Bank’s policy outlook caused the shared currency to close the day lower against the dollar. 

Citing officials with direct knowledge of talks, Bloomberg on Monday reported that several ECB officials were worried about inflation expectations becoming ‘de-anchored.’ On a similar note, "Two sources familiar with the ECB's policy discussions said a rate cut was firmly in play if the bloc's economy was to stagnate again after expanding by 0.4% in the first quarter of the year," Reuters reported over the weekend. Later in the day, ECB vice president Luis de Guindos reiterated that the bank was standing ready to adjust all of its instruments as appropriate noting that global headwinds were weighing on the euro area. 

What’s coming up? 

UK: The UK’s Office for National Statistics will publish the employment report, which will include the claimant count change, ILO unemployment rate, and average earnings including/excluding bonuses, on Tuesday. 

US: The NFIB Business Optimism Index, the IBD/TIPP Economic Optimism, and the Producer Price Index (PPI) reports will be featured in the U.S. economic docket. 

EU: The only data release from the UK on Tuesday will be the Sentix Investor Confidence.