The Pound saw gains against most of the majors last week as polls continued to suggest that the ruling Conservatives would strengthen their position in June 8th general election and therefore head into the Brexit negotiations in a stronger position. Relative Sterling strength stayed even after softer than expected GDP and housing data, with GBP/USD hitting a 29-week high during Friday’s afternoon session.
For the week, Sterling gained 1% against the US Dollar, 3.3% against the Japanese Yen but lost 0.5% against the Euro.
This week, we get more forward looking data in the form of manufacturing, construction and the key services PMIs, but the looming general election will remain in focus.
The positive effect of the Macron/Le Pen outcome continued at the start of last week, with Euro buying clearly a favoured play.
A sources story late Tuesday suggested ECB policies may be tweaked in the wake of the Macron victory, as many rate-setters are open to sending a small signal towards reducing monetary stimulus. However, ECB hawks were brought back to earth as Mario Draghi made no changes. He reiterated that policy decisions do not account for politics and emphasised the need to keep monetary policy accommodative noting that the slide in the Eurozone March CPI was larger than expected.
Looking ahead, PMIs are due out across the Eurozone, with the midweek Q1 GDP release tomorrow accompanied by the German employment report.
The Dollar lost ground against most of the major currencies last week. The reserve currency began the week on the defensive with the US Dollar Index trading at a new 23-week low. The lack of detail from President Trump’s tax plan announcement and the not insignificant threat of a US government shutdown added further weight for the US Dollar.
Looking ahead, it’s a busy week in the US with focus on the private ADP jobs survey and ISM non-manufacturing PMIs on Wednesday and the April non-farm payrolls report on Friday. We also have the FOMC meeting which has drawn little attention given the focus on a possible Fed move in June.
The Yen was the weakest of the majors last week as risk sentiment continued to improve. Domestic impulses had little impact, with the BoJ standing pat on policy as widely expected. Bank of Japan Governor Kuroda spoke in the press conference and noted that there’s a high chance of achieving 2% inflation in the year to March 2019.
The Canadian Dollar fell last week as the US administration got the knives out for lumber producers in Canada. Blaming unfair subsidies policy against US firms, Commerce Secretary Ross announced plans to impose a 20% tariff on imported softwood lumber, adding that it will consider similar moves on dairy produce after Canada looked to close loopholes on milk imports.
Comments from President Trump added further pressure on the Canadian Dollar as he said he’s still ready to pull out of the North American Free Trade Agreement if he can’t renegotiate better terms for the US.
NEW ZEALAND DOLLAR
The New Zealand dollar also fell last week amid reports of a move by President Trump to impose new restrictions on imports into the world’s largest economy.
Later today, the Dollar may get a boost with expectations that tonight’s Global Dairy Trade auction will deliver little-changed prices.
The Swedish Krona saw gains last week despite the Riksbank leaving rates alone. It also decided to extend its QE program beyond June with an additional SEK 15Bln worth of government bond buying.