News & analysis


Optimism on a Brexit compromise led sterling to the top of the board on Friday, after a damning election result drove the Conservative and the Labour Party straight into each other’s arms. Theresa May continued to drop hints she may be willing to compromise on some form of customs union with the European bloc. However, over the weekend uncertainty increased again as shadow chancellor John McDonnell said the Prime Minister is not to be trusted, casting doubts on how willing both parties are to work together on the Brexit issue. Q1 Gross Domestic Product growth will be this week’s main data release, giving us the first feedback on whether the Bank of England growth expectations that were upgraded last week, are justified.


EUR took the highest Core Consumer Price Index reading since August 2017 rather stoically and didn’t move much on the release and eventually settled close to the open on EURUSD after some volatility later in the session. The reason why EUR didn’t move on the back of the April 1.2% core inflation figure (1.0% expected, 0.8% in March) was that euro crosses already rallied on Tuesday after the strong Spanish and German CPI figures came out. Also, Easter effects likely played a large role as services inflation was the main driver of the peak in Core CPI, suggesting the higher level is not sustainable in coming months. Today sees the most important Eurozone releases of the week, with the Final Services Purchasing Manager Indices coming out throughout the morning. Retail Sales data is released at 10:00 BST, shedding light on how well real wage growth translates into consumer spending.


A smashing beat on Employment growth, the lowest Unemployment rate since the Summer of ‘69 and yet the greenback clung to the lowest rung of the G10 currency board on Friday. A soft Average Hourly Earnings print (+3.2% year on year versus +3.3% expected) was all that was needed to completely erase any dollar optimism one might expect from the sizzling labour market. However, as long as the tightness in the labour market doesn’t translate into higher wage growth, inflation won’t pick up and this means the Federal Reserve won’t be spurred into raising interest rates, which explains why USD actually softened after the labour market data. On Sunday Donald Trump – once again – sent shocks through markets by saying he would lift tariffs on Chinese goods from 10% to 25% as early as this Friday. This caused equity markets to move deeply in the red, while safe-haven currencies like JPY and CHF benefited from inflows. Trump’s strategy appears to be to apply extra pressure on the Chinese, however, as the meeting with the Chinese trade delegation in Washington at the end of the week has now become uncertain, he might have hurt the prospects of the US economy instead. Also, it may be in Trump’s interest to keep the trade war with China on the agenda ahead of the November 2020 elections, as this topic goes down well with his voter base,


No data was due for Canada on Friday, which made the loonie the playball of developments elsewhere. This didn’t serve CAD too badly, as the currency ended up in the top half of the collection of major currencies, with gains especially pronounced against USD. For action from the data front we’ll have to wait until the end of the week, with the Trade Balanced scheduled for Thursday, followed by labour market data on Friday.