UK Politics Continue to Hurt British Pound
What’s been happening?
Pound Sterling – UK Markets
The pound sterling struggled to find demand following the latest political developments in the UK and fell to its lowest level since mid-February against both the euro and the dollar.
On Thursday, the opposition Labour Party’s Brexit spokesman Starmer told reporters that his party will vote against Prime Minister Theresa May’s Withdrawal Agreement if the government failed to make a deal with them before the Brexit vote in Parliament, which is scheduled to take place in the week starting June 3rd. Later in the day, Prime Minister Theresa May met with the Executive of the 1922 Committee. "We have agreed that she and I will meet following the 2nd reading of the Bill to agree a timetable for the election of a new leader of the Conservative Unionist Party," Sir Graham Brady said in a statement following the meeting. While speaking to reporters, Sir Brady explained that the PM will resign “whether or not the Withdrawal Agreement passes in June.”
US Dollar – US Markets
The lack of headlines surrounding the U.S.-China trade dispute allowed the 10-year US Treasury bond yield to recover from the multi-month lows that it set earlier in the day and helped the greenback outperform its rivals. The US Dollar Index, which tracks the buck’s valuation against a basket of six major currencies, rose to its highest level in two weeks.
In the meantime, the weekly initial jobless claims decreased by 16,000 to 212,000 in the week ending May 10. Other data from the U.S. revealed that housing starts rose by 5.7% on a monthly basis in April and building permits increased by 0.6% in the same period.
While speaking at an event in Boston, Minneapolis Fed President Kashkari, who is a known dove, shifted his tone on the policy outlook and said that he would need to see data showing real economic weakness before cutting rates. Kashkari further argued that higher tariffs could provide a temporary boost to inflation.
Euro – European Markets
The shared currency failed to stay resilient against the dollar but was able to post gains vs the British pound for the tenth straight day. The data published by the Eurostat on Thursday showed that the trade surplus widened to €22.5 billion in March from €17.9 billion in February to beat the market estimate of €19.9 billion. “Exports of goods to the rest of the world in March 2019 was €205.6 billion, an increase of 3.1% compared with March 2018 (€199.5 bn),” the Eurostat noted in its press release. “Imports from the rest of the world stood at €183.1 bn, a rise of 6.0% compared with March 2018 (€172.7 bn).”
During a scheduled speech at the German Savings Banks Association in Hamburg, Bundesbank President and ECB governing council member, Jens Weidmann, said that domestic inflation remained “stubbornly low,” and there was no need to postpone policy normalization if outlook allowed for it.
What’s coming up?
UK: There won’t be any macroeconomic data releases from the UK on Friday.
US: The University of Michigan’s Consumer Confidence Index will be the only data release on Friday. NY Fed President Williams and Vice Chair Clarida are scheduled to deliver speeches.
EU: The Eurostat will publish its inflation report, which is expected to show the core CPI staying unchanged at 1.2% on a yearly basis in April.