Markets focused on ECB meeting and Draghi’s speech today
What’s been happening?
Pound Sterling – UK Markets:
The Pound to Euro rate is rather volatile at the moment, exchanging at €1.14*. Sterling remains in lower grounds against the US Dollar, with the exchange rate at $1.39*.
We have had some positive and negative data come out of the UK this month. The most recent April release of UK public finance data by the Office for National Statistics (ONS) showed a significant fall in borrowing and an expectation-exceeding improvement in the country’s fiscal position. The ONS figures show that the UK government has succeeded in eliminating the current budget deficit for the first time since 2001-2002. The global investment bank MUFG have suggested that according to their analytical interpretation of the released data, the British Pound is very likely to benefit from improving public finances in the long run, as such improvement will allow the Bank of England to be much more assured when raising interest rates.
On the negative front, we have the Average Productivity Growth data, which for the first time in almost a century come out as exceptionally adverse, according to BoE researcher, John Lewis. According to the financial expert, from 2007, 10-year average productivity growth was negative for the first time in almost a century, worryingly proving to be the worst decade since the late 18th century.
US Dollar – US Markets:
The Euro remains steady against the US Dollar, exchanging at $1.21*. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, sits at 91.23*.
The US dollar continued its rally against other major currencies on Wednesday for a third consecutive session. The momentum has resulted in the American bond yields reaching an all-time post-crisis high, appreciating above the key 3% level. Most major international markets have fixed their interest on the USD, with many selling off other currencies and buying greenback in order to exploit the rise.
The US trading tariffs will soon start coming into force, with Germany seeing 1st May as the set off date., as their temporary exemption expires. Germany aimed to achieve a long-term delay for the introduction of tariffs, however the US President Donald Trump’s fist has been put down and countries to be affected by the tariffs are no longer expecting much leniency.
Euro – European Markets:
The Euro is expecting some improvement against the Pound, with the exchange rate now at £0.87*.
Majority of this week has been focused on predictions about the upcoming ECB rates decision meeting and the conference led by Mario Draghi, which will follow shortly after. No drastic changes are expected to come out of the rates meeting, with markets’ main interest placed on Draghi’s speech, analysts will be listening out for clues to the Eurozone economy and the ECB’s timeline regarding quantitative easing (QE).
Data from Germany has been rather disappointing as of late, with the government trimming the 2018 growth forecast to 2.3% from 2.4% previously, as well as expressed concern about international trade tension. However, the German government has insisted that the “economy remains buoyant and the upturn is continuing”. The decision to trim the growth forecast came after the Ifo economic institute’s business confidence measure on Tuesday, which showed a fifth consecutive fall in April.
Other Currencies – Highlights:
The Sterling stands healthy against the Australian Dollar, with the exchange rate at 1.84 AUD*.
The Pound has increased against the Japanese Yen, which now stands at 152.28¥*.
AUD is seen to be at the lowest level against the USD since Dec 2017 as US ten-year bond yield climbs to over 3%.
Canada has finally seen some progress on NAFTA auto rules. Canadian Foreign Minister Chrystia Freeland visited the US trade Representative Robert Lighthizer to discuss NAFTA key auto rule issues in Washington on Wednesday. Although a close to agreement stage has been reached, the threat of proposed US steel and aluminium tariffs coming into force next week clouded the mood. According to Freeland, the majority of talks focused on rules of origin governing what percentage of a car needs to be built in the NAFTA region in order to be sold tariff-free within North America.
What’s coming up?
UK: Very little data will be coming out of the UK today, that will have market impact. The UK braces ahead of key GDP data, coming out tomorrow.
US: Durable Goods data will be coming out of the US today. GDP data will be released tomorrow.
EU: ECB rate announcement and press conference led by Mario Draghi will be taking place today.