What’s been happening?

Pound Sterling – UK Markets 

The British pound strengthened this morning as employment and wage numbers reached expected levels. The highly anticipated set of labour and wage data was released earlier today, showing the unemployment rate staying at 4.2% as markets expected. Wage rises were also more-or-less in line with expectations, at 2.9% in the average earnings index (excluding bonus) and 2.6% for the average earnings index (including bonus). 

Britain continues to be scrutinised by the EU regarding slow progress on Brexit negotiations. The European Union warned Britain on Monday that time was running out to finalise a Brexit deal this Autumn. The EU’s Brexit negotiator Michel Bernier told 27 ministers of the bloc meeting in Brussels that “no significant progress” had been made in negotiations with London since March. Concerns have been raised by several diplomats about whether the bloc and London will be able to achieve a milestone in the negotiations at the conference of EU leaders on 28 – 29 June. May’s spokesman responded to the concerns, - saying that the “focus is on getting this right rather than meeting a deadline”. 

No agreement has been reached yet regarding the future of the Northern Ireland border, as well as the structure of the EU customs. The final Brexit deal is set to be released by October, however Ekaterina Zakharieva, deputy prime minister of Bulgaria, is reluctant to accept that this is possible, saying that “October is only five months from now and still some key issues related to the withdrawal agreement need to be settled. In June we need to see substantive progress on Ireland, on governance and all remaining separation issues”.

US Dollar – US Markets

The US dollar has received a boost this morning from rising US Treasury yields ahead of US retail sales data coming out later today. The gap between the yields on 10-year US Treasury notes and German government bonds reached its widest in almost three decades, signalling that growth remains steadier in the US than Europe. The trend of a wider spread could continue, analysts believe. Fed Reserve officials are anticipating two more rate increases this year and three more in 2019. The European Central Bank on the other hand continues to look for a way to climb out of its negative interest rate policy. 

Euro – European Markets

In Europe, the spotlight today is on the German Gross Domestic Product statistics. Economic data flow out of the Eurozone has continued to disappoint the consensus forecasts since the beginning of the year and the report released today has followed with more of same. 

German GDP output is up 0.3% in Q1, after 0.6% in the previous quarter. Growth has halved due to weaker trade and less state spending, data showed this morning, although analyst are referring to it as a “temporary blip”. Germany, Europe’s biggest economy, has seen the slowest growth rate since the third quarter of 2016, preliminary data from the Federal Statistics Office showed. 

More positive contributions in Q1 came mainly from domestic demand. "Investment rose sharply, with significantly more investment in construction, but also in equipment," the office said. Year on year, the German economy grew by 2.3% in Q1, short of the consensus forecast of 2.4%.

What’s coming up? 

UK: No major data coming out of the UK today, focus will be on Brexit negotiations and Britain’s response to yesterday’s EU ministers’ bloc meeting. 

US: The US markets will be focusing on April’s retail sales figures coming out this afternoon, USD rate is vulnerable to this data. FOMC members Williams and Kaplan will be giving speeches.

EU: Not much major data is coming out of Europe today. Tomorrow morning, we will see harmonized index of consumer prices coming out of Germany, followed by the release of Europe’s overall consumer price index figures. ECB president Mario Draghi will be discussing the latest data in the afternoon.