The Pound saw strong gains against most of the major currencies last week, after rallying sharply on Tuesday on news that the UK would hold a snap general-election in June. Polls would suggest that the ruling Conservatives would strengthen their position in government and therefore head into the Brexit negotiations in a stronger position. Tuesday’s rally also triggered market stops in GBP/USD which sent the pair soaring to its best level in six months.
There was also some positive news from the International Monetary Fund who hiked their UK GDP forecast for this year to 2.0% from 1.5%. However, gains were trimmed slightly later in the week with the soft retail sales report on Friday providing a weight.
For the week, Sterling gained 2.3% against the US Dollar, 1.3% against the Euro and 2.8% against the Japanese Yen.
This week, we await CBI data later today and GDP figures on Friday.
The Euro soared across the board overnight after Emmanuel Macron won the first round of the French presidential election – the centrist candidate is the clear favourite to win the runoff vote with Marine Le Pen in two weeks’ time. The drop has effectively reversed the sharp rise we saw in GBP/EUR last week after UK PM May announced her intention to hold a snap election.
Data releases did not prompt much reaction with March Eurozone CPI confirmed at 1.5% year-on-year. There were also multi-year highs for both manufacturing and service sector PMI’s on Friday.
ECB speakers meanwhile were largely in line with recent rhetoric. President Mario Draghi spoke on Friday and said they cannot yet have sufficient confidence that a sustained adjustment in inflation will materialise in a durable manner. The ECB will also announce their latest policy decision on Thursday.
The US Dollar lost ground against most of the major currencies last week. The reserve currency began the week on the defensive following the weak retail sales and softer CPI figures. Comments on Monday from US Treasury Secretary Mnuchin that suggested tax reform plans could be delayed also provided a weight. Losses were extended on Tuesday as US government bond yields tumbled to their lowest level since November with safe-haven assets receiving a boost from the geopolitical concerns surrounding North Korea.
This week, focus will likely remain on Washington and Trump’s efforts to push through his plans for tax reform as well as any developments regarding North Korea. Consumer confidence, new home sales and durable goods orders all precede the GDP report on Friday.
The Japanese Yen fell against most of the majors last week although did reduce losses in the final session. The Yen had benefitted from broad risk aversion in the prior trading week but we saw this dissipate somewhat last week as geopolitical concerns eased and there was renewed optimism regarding US President Trump’s plans for tax reform.
Domestic impulses meanwhile were limited. BoJ Governor Kuroda spoke on Monday and noted that consumer spending is escaping weakness. Manufacturing PMI improved on Friday to 52.8 from 52.4 and may have provided some support.
The Australian Dollar was broadly lower last week, weighed by heavy losses seen on Tuesday and Wednesday. This followed a relatively dovish set of RBA minutes that noted growing concern around the labour and housing markets. Bearish sentiment surrounding the commodity markets also provided a weight – LME three-month copper prices fell to their lowest since January while oil prices have also declined.
The Canadian Dollar fell last week, weighed by sizeable losses in oil markets – US crude futures dipped below $50 a barrel on Friday, losing over seven percent for the week. Losses were extended on Friday after Canadian inflation data came in below forecast with year-on-year CPI at just 1.6%.
NEW ZEALAND DOLLAR
The New Zealand Dollar saw modest gains last week, boosted by the stronger than expected inflation data released early on Thursday – year-on-year CPI rose 2.2%.