Sterling weakened last week as talks between Theresa May’s Government and the Labour party on a compromise Brexit agreement broke down. Unless May manages to achieve some type of breakthrough in the near future, a likely Conservative Party revolt would see her ousted and replaced, possibly by a Eurosceptic such as Boris Johnson – a prospect that would likely see further sterling weakness due to the increased chances of a no-deal Brexit in October. The Telegraph reported yesterday that Theresa May would be making a last-ditch attempt to get some version of her withdrawal deal through parliament. The details of the offer and how MPs on both sides of the aisle react will, therefore, be fodder for sterling volatility this week. The week’s calendar holds multiple events of relevance for sterling: Senior Bank of England decision makers will testify to the Treasury Select Committee on Tuesday at 09:30 BST. Consumer Price Index data will be released on Wednesday, followed by Retail Sales on Friday.
The euro weakened against USD last week, but the losses were in line with most of the G10 currencies and less than those suffered by JPY. Trump administration officials confirmed the delay of a decision on if automobile tariffs will be implemented on the EU, although the news was widely anticipated and had little effect on the euro. This week will revolve around a busy data calendar, as well as the run-up to European Parliamentary election this weekend. Most countries will have their polls on Sunday – but ironically perhaps the most interesting will be those in the UK, where both major parties are expected to lose significant vote share. Elsewhere, the vote shared of eurosceptic and far-right parties are expected to increase. This morning’s data has included a firm print for German Producer Prices, which rose 0.5% in April. Later this week European Purchasing Managers Indices will be released on Thursday, with the German economy in focus after last month’s figures showed the manufacturing sector still in contraction.
The US dollar was generally well bid last week, strengthening against most major currencies. The trade disagreement between the US and China worsened last week, as both sides appeared to dig in for an extended period of tariffs. The big question this week will be if the US moves towards imposing tariffs on the additional $300bn of imports threatened by Donald Trump over the last couple of weeks. Minutes from the Federal Open Market Committee latest meeting will be released on Wednesday. Given markets were surprised the FOMC did not take a more dovish tone the minutes will be useful for judging the balance of opinion on the committee. Apart from the Meeting Minutes, FOMC speakers scattered around the week will be of interest to get more insight in how the FOMC views the impacts of the recent flare-up in the trade dispute on monetary policy. Core Durable Goods Orders are due on Friday.
The loonie was the strongest performing G10 currency on Friday on the back of WTI crude oil prices that reached their highest level of the month, edging closer to 6-month highs. Saudi Arabia can lay claim on the responsibility of a great part of the oil move as the largest oil producing country accused Iran of sabotaging two oil tankers that sailed under the Saudi flag in the strait of Hormuz. Additionally, Saudi’s Energy Minister Khalid al-Falih said this morning that there is a consensus among OPEC members to further cut oil supply, which can be formally affirmed on the next OPEC+ meeting on the 25th and 26th of June in Vienna. The International Energy Agency says weakened global demand should limit the upside for oil price surges, but so far these words have proved to be of little prophetic value in May. Retail Sales on Wednesday will be Canada’s most important data release of the week after the country enjoys a bank holiday today in celebration of Victoria Day.