What’s been happening?

Pound Sterling – UK Markets

With no major data coming out of the UK yesterday, market attention was again focussed on Eurozone developments.

The European Union has voiced increasing frustration over a lack of progress in key areas of the Brexit negotiations, raising further fears of a bad deal or no-deal for the UK if no mutually satisfying arrangement is reached. However, there was some support for the British Pound as a rebound by oil stocks yesterday helped Britain’s blue-chip index recover from a global sell-off triggered by the political crisis in Italy and new fears of a trade war between the US and China. The UK’s FTSE 100 ended up 0.75% yesterday after concluding the previous session at its lowest level in nearly three weeks. The two oil majors British Petroleum and Royal Dutch Shell rose by more than 2% as oil prices soared to $76 a barrel. 

After falling as low as 1.3205 earlier this week, Sterling managed to jump back up above 1.3346 against the US Dollar this morning ahead of Federal Reserve’s inflation forecast, which is expected to decelerate to 1.8% in April. 

US Dollar – US Markets

The first quarter US GDP revised to 2.2%, below the 2.3% growth expectation according to the report presented by the Commerce Department yesterday. US economic growth is thought to have slowed slightly more than initially expected amid downward revisions to the inventory investment and consumer spending, however income tax cuts are anticipated to boost the US economic activity this year.

The Federal Reserve’s “Beige Book”, which is a summary of contacts with businesses in its 12 regional districts, yesterday revealed a positive outlook for the second quarter. US factories ramped up production in late April and early May despite the risk of a global trade war, the Fed Reserve reported. The US central bank pointed to a strong output in heavy machinery, fabricated metals and electronics equipment. "Manufacturing shifted into higher gear," the Fed said in its latest report.

Euro – European Markets

With the Eurozone going through turmoil due to the political situation in Italy and its May economic sentiment dipping marginally to 112.5 from 112.7, some positive key data coming out of Germany yesterday was welcomed by the Euro markets. The German inflation index was stronger than expected with the year on year rate at 2.2% from 1.6%, this was the fastest pace since February 2017. Energy prices were the significant factor, although the services sector rate increased to 1.9% from 1.6%. “This data supports the European Central Bank’s path to cautiously exit its unconventional monetary policy,” said the KfW bank economist Joerg Zeuner.

The Euro is trading up 0.45% at around 1.1715 against the US Dollar today, as the Italian political parties opted to form a government rather than hold an election. This has eased fears of new Italian elections becoming an anti-Euro vote. The Eurozone inflation rose to 1.9% in May, just below the 2% inflation target by the European Central Bank. At the same time, the Eurozone unemployment rate dropped to 8.5% in April.

What’s coming up? 

UK: No major data coming out of the UK today. Markets will be focusing on the UK’s Markit Manufacturing PMI for the month of May, which will be released tomorrow morning. 

US: Markets will be looking at the Personal Spending figure for the month of April coming out tomorrow afternoon, followed by the Core Personal Consumption Expenditure data (a high reading is bullish for the USD, while a low reading is bearish). 

EU: Markets will continue to follow the political situation in Italy. The Manufacturing Purchasing Managers Index (PMI) will be released by the Markit Economics tomorrow morning. The manufacturing PMI is an important indicator of business conditions and the overall economic condition in the Euro Zone.