Data points to UK slowdown
May 4th: Highlights
- Rate hike hopes crushed by purchasing managers data
- Dollar awaits employment data
- Euro struggling to regain 1.2000
UK Economy suffering from renewed Brexit concerns
Next week’s MPC meeting will remain significant, not now for a rate hike but for the comments from Governor Mark Carney at his press conference in which he will be expected to be more defensive about the country’s economic prospects yet provide advance guidance on rate hikes in the future.
Sterling was beginning to show signs of having made a short-term bottom prior to the data being released. It reached a high of 1.3667 before falling back to close at 1.3614. It has fallen back below 1.3600 overnight and is currently (6.30BST) trading at 1.3576.
Next week is dominated by the MPC meeting but data releases include house prices on Tuesday, manufacturing and industrial production on Thursday.
Dollar index treads water ahead of data
A figure close to 3% will be sufficient to raise expectations of a rate hike at the June FOMC meeting despite cautious comments on inflation from Fed Chairman Jerome Powell following this week’s meeting.
The dollar index corrected a little yesterday reaching a low of 92.34 and closing close to that level. Overnight it has been virtually unchanged as traders await the data.
It is too early to call a top for the dollar’s recent rally given the number of positive drivers the greenback has been reacting to but give the proximity of a major support level for the Euro which makes up more than 50% of the index’s basket a disappointing employment report could start a significant correction.
Reactive euro struggling to make ground
Data released recently shows that 47% of all loans in Cyprus and 35% in Greece are past due. While these economies make up a small part of the overall Eurozone economy, Draghi takes very seriously his commitment to treat each economy in the same manner and while the stronger economies of Northern Europe are not seeing significant increases in inflation he believes rates can remain lower for longer.
It remains to be seen what effect on inflation will be seen from the fall in the Euro but since the source and path of price increases have not been evident the ECB will remain reactive and welcome the economic benefit of a lower currency.
The euro is back below 1.2000 despite making a high of 1.2010 yesterday. It has barely changed overnight also awaiting today’s U.S. data. It is within striking distance of significant support at 1.1880 but it will take a major surprise for that the be conclusively broken in the current environment.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”