General election malaise undermines Sterling
A difficult week for sterling last week as it lost nearly four cents against the US dollar, falling to its lowest level against since June 2010. A number of factors were the cause of this but close to the top of the list is the continuing uncertainty over the UK general election, now less than a month away. Despite the uncertainty, sterling performed well against the euro, as fears over the Greek debt crisis continue.
This week there are two key data releases; inflation data tomorrow and unemployment data on Friday. The inflation data is expected to show it close to zero. The worry is that it becomes negative and even though the reasons are “sensible” in that international energy costs have halved, it would undermine sterling.
UK labour data on Friday looks set to be the only other major fundamental economic data released from the UK this week. Average earnings over the previous three months are expected to show further strong growth, as wage growth continues the strong recovery already seen in 2015. Supporting this will be the latest unemployment rates, which should show a further fall to 5.6%, the lowest level since September 2008.
Euro under huge pressure
The euro moved under 1.06 against its major peer, the US dollar, on Friday, as the American currency continued to pile on the pressure on the single currency. This was the lowest point we have seen in three weeks for the most widely traded currency pair in the world.
For the most part, euro investors are still focusing on whether Greece will be able to reschedule their debt with their lenders or have to default. A key date is this coming Friday.
During the week we have a raft of data releases; industrial production tomorrow , trade balance figures on Wednesday and inflation data on Friday. But the key event is most probably the European Central Bank meeting on Wednesday. No change in policy over interest rates or their programme of quantitative easing is expected but the comments from their President post the meeting will be very closely scrutinized given how much is happening in the Eurozone.
US Dollar still in its pomp
The US dollar ended the week with a quiet day in terms of data. Import prices showed a slight decline – a continuous theme for this figure so far this year. US Federal Reserve member Lacker spoke, outlining that he still believes the US Federal Reserve should consider raising rates in June. He suggested that the recently released Federal Reserve minutes showed that the majority of members were in support of a June interest rate rise.
This week for the US dollar begins with important retail sales figures, expected to show a significant increase on the previous month. Producer inflation follows, and this is also expected to show a slight increase as the US tries to recover from the recent slowdown from the oil price slump. Industrial production is due on Wednesday, along with crude oil inventories; this is expected to show a small decline indicating the recent slowdown in the US economy.
Thursday will see the beginning of the G20 meeting, attended by finance ministers and central bankers from 20 industrialised nations, including the US. Markets may react to this as reports feed through all day. Weekly unemployment claims are expected to show a small increase on the previous week, with three US Federal Reserve members speaking – and a spotlight on their feelings about the pending interest rate change. Friday will see the continuation of the G20 meeting, and the consumer inflation is due; this is expected to show no movement.
Strong finish for the Canadian dollar
Friday saw the Canadian dollar finish a great week, thanks to the release of strong Canadian employment and housing reports. Canadian unemployment maintained its position for March as expected, staying at 6.8%, whilst Canadian housing starts rose by 187,700 units last month – higher than the anticipated figure of 175,000.
In China, consumer price rose 1.4% year on year in March, just a fraction above the figure expected by analysts. This ultimately saw an impact on China’s second largest export partner, Australia. The Australian dollar reacted by jumping almost quarter of a percent against the US dollar. This week we have a whole raft of Chinese data; trade numbers today, gross domestic product, industrial production and retails sales all on Wednesday followed by fixed asset investment, all of which could have an impact as the state of the Chinese economy has a huge impact on other economies and their exchange rates.
