Sterling Weak on Brexit Worries
The Pound remains in a weaker position in reaction to the UK’s EU meeting in Brussels over the weekend that was rumoured to have gone very badly. Today’s UK’s factory output smashed expectations, rising from 54.2 in March to a stellar 57.3 in April. Sterling wasn’t boosted by the news, because it’s still under pressure by renewed concerns of a “Hard Brexit.”
Today, the US Dollar is still down after the release of data shows that there may be reason to be cautious about the FED raising interest rates. The FED’s monetary policy meeting tomorrow might be a game changer for the Dollar, which will rise if the FED gives a nod to a June rate hike.
Pound Sterling – UK Markets
On Tuesday, the Sterling to Euro exchange rate was at €1.18, making the Pound weaker by 0.1%. The released UK’s April manufacturing PMI data were surprisingly better than expected, spiking to a 3-year high, but failed to move the rate in favour of the Pound. The underwhelming data on the UK economy that was released on Friday and Saturday’s meeting of the EU27 leaders to discuss the Brexit negotiation stance in Brussels, have contributed to the fall.
The European leaders appeared to have selected a strict stance in dealing with matters like post-Brexit citizens’ rights and the issue of strictly phased negotiations. They also want to include in the deal a role for the European Court of Justice, in case of future disputes with the UK. Referring to the EU’s demand for phased negotiations, Angela Merkel said that, “I have the impression that these phases may haven’t become clear enough to some in Britain.”
On the contrary, Sterling gained a bit of value (0.04%) against the US Dollar, continuing last week’s good performance. The Pound to US Dollar exchange rate was at $1.28, while some analysts were speculating that the Pound could conquer the $1.30 handle. Although the Pound remains strong, the news on the EU’s stance on Brexit negotiations seems to limit the drive upwards.
US Dollar – US Markets
The US Dollar kept dipping against the Euro, losing 0.12% of its value, setting the rate at €0.91. Economic data released on Friday and on Monday have seemingly helped the trend. Weak US factory and inflation data made market analysts reconsider their expectations for a June interest rate hike from the FED.
The Personal Consumption Expenditures (PCE) price index slipped 0.1% in March, which is the first drop in the last 16 years. The FED prefers to measure inflation based on the so-called core PCE price index reading for the last 12 months. In the last year, the reading increased by 1.6%, missing the central bank’s target of 2%.
Economists believe that on Wednesday’s monetary policy statement, the FED will regard the weak data as “transitory”. Despite the condition of the US economy, president Trump continues to catch all the attention, this time by giving an interview on Bloomberg. Trump revealed that he will consider breaking up the large Wall Street banks, vowing to restore the legal barrier between investment and consumer banking, which Bill Clinton repealed in 1999. Donald Trump also said that he is open to increasing the US gas tax to fund infrastructure development. Sending a message to calm down the markets, the president suggested that he would be willing to meet North Korea’s leader Kim Jong Un “under the right circumstances”.
Euro – European Markets
Today, the Euro is stable against the Dollar at $1.09. The single currency is trading a tad higher after the announcement of the Markit Manufacturing Purchasing Managers’ Index (PMI). According to the Markit Eurozone Manufacturing PMI, Eurozone manufacturing has expanded at the fastest pace in six years. In terms of output, new orders and employment all rose at the quickest rates in six years, but input price pressures remained elevated, easing further from a recent high. Seven out of the eight countries recorded an improvement in operating conditions, with the exception of Greece where a deterioration was reported for the eighth straight month. Germany was the best performer in the PMI growth rankings, seeing its rate of expansion remaining close to March’s 71-month high.
The Spanish and the Italian PMIs are experiencing momentum and have surged from their earlier positions.
The Eurozone unemployment rates remained unchanged at 9.5%, thus, not affecting the Euro.
According to financial analysts, the upcoming months will be “constructive” for the single currency, which will “experience a period of outperformance” and will “extend gains over the medium term” of 2017. The Euro’s strong performance will depend on decreasing political risk with the expected victory of Emmanuel Macron on 7 May and the prolonged economic recovery in the Eurozone area, after the European Central Bank (ECB) confirmed the extension of its stimulus programme. Additionally, earlier this morning the Greek financial minister Euclid Tsakalotos announced that the government has reached a preliminary deal with its creditors which will allow the country to guarantee debt relief measures from its creditors. Greece is due to pay €7bn in debt in July, and according to Tsakalotos, the new agreement will “pave the way for long-awaited debt relief negotiations”.
Other Currencies – Highlights
The Pound is keeping strong against the Australian Dollar and today is trading at 1.71 AUD. The analysts predict Sterling to rise, breaching the level of 1.73 AUD and 1.75 AUD towards the end of the week. However, the markets might slow down today after the announcement that Australia has kept its interest rates to a record low of 1.5% for the ninth consecutive month. The Reserve Bank of Australia is optimistic for the economic growth of the country, but remains uncertain about the wages’ rate, expecting them to remain at the same position “for a while yet".
The New Zealand Dollar has risen after its bad performance last week. Sterling lost some of its value and today is at 1.86 NZD. The Kiwi is expected to stay stable through the day. The country’s GDP is due to be announced later on. Economists expect slow growth and an increase from 0.4 to 0.7.