What’s been happening?

Pound Sterling – UK Markets 

The British pound posted modest gains against both the dollar and the euro on Tuesday as the upbeat market sentiment helped the risk-sensitive currency find some demand. However, the fact that there were no fundamental drivers behind today’s market action suggests that the recovery is technical and could lose momentum before it deepens.

The only data from the UK on Tuesday showed that following the manufacturing sector, the construction sector also lost momentum in May with the IHS Markit/CIPS’ headline PMI falling into the contraction territory below the 50 mark. Assessing the data, “With the continuing uncertainty around Brexit and instabilities in the UK economy, client indecision affected new orders which fell at their fastest since March 2018 and particularly affected commercial activity,” noted Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply (CIPS). 

Meanwhile, during a joint press conference with British Prime Minister Theresa May, U.S. President Donald Trump said that the U.S. was committed to making a “phenomenal” trade deal with the UK once it left the EU.

US Dollar – US Markets

The US Dollar Index, which tracks the greenback’s value against a basket of six major currencies, extended its decline on Tuesday and touched its lowest level since April 18 pressured by FOMC Chairman Powell’s remarks.

“I’d like first to say a word about recent developments involving trade negotiations and other matters. We do not know how or when these issues will be resolved,” Powell said while speaking at an event organized by the Federal Reserve Bank of Chicago. “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2% objective.” Although none of these remarks specifically mentioned the possibility of a rate cut, the fact that the phrase “patient stance” was not used by Powell was assessed as a dovish shift in tone.

Later in the day, the U.S. Census Bureau announced that orders for manufactured goods declined by 0.8% on a monthly basis in April following March’s increase of 1.3%. Finally, ISM-NY’s Business Conditions Index slumped to 48.6 in May from 77.3 in April. 

Euro – European Markets

The shared currency came under pressure in the first half of the day after the data published by the Eurostat showed that inflation, as measured by the Consumer Price Index (CPI), dropped to 1.2% in May from 1.7% in April and fell short of the market expectation of 1.3%. The core CPI, which strips volatile food and energy prices, came in at 0.8% to suggest that the ECB is unlikely to consider a rate hike anytime soon. Other data from the euro area revealed that the unemployment rate in April ticked down to 7.6% from 7.7% in March. 

What’s coming up? 

UK: The IHS Markit will release the Services PMI (May-final) on Wednesday. Bank of England Deputy Governor Ramsden is scheduled to deliver a speech as well. 

US: The ADP will publish its private sector employment report ahead of the IHS Markit’s and the ISM’s non-manufacturing PMI reports. The Fed is scheduled to release its Beige Book later in the day. 

EU: The European economic docket will feature the IHS Markit’s Services PMI reports for Germany and the euro zone alongside the euro area Producer Price Index (PPI) and retail sales figures.