Staggering Pound continues losing streak

4th June 2019 Off By binary

GBP

UK mortgage approvals in April beat consensus forecasts and consumer lending also bettered expectations at £5.2bn from £4.7bn the previous month, the highest level since July last year. The Pound was largely unaffected by the data as global trade and domestic political conditions dominated. Weaker risk appetite and lower oil prices undermined Sterling, especially given a lack of positive political developments.

 

Sterling dipped to near 1.2550 on the Dollar, 4-month lows, and the Euro peaked near 1.1268. In US trading the Dollar lost ground and moved back above 1.2600 while the Euro retreated from peak levels but still registered a 2.8% gain on the Pound in the last month. CFTC (futures market) data recorded a further increase in short, non-commercial Sterling positions (bets against the Pound). The Pound edged higher against a fragile Dollar in Asian trading hours this morning with the Euro close to 1.1312.

 

EUR

 

German consumer inflation increased 0.2% for May, just below consensus forecasts of 0.3%. The year-on-year rate dropped to 1.4% from 2.0% as the Easter effect of last month’s figure was reversed. German bond yields continued to decline with the benchmark 10-year rate testing record lows at -0.20% as global risk aversion supported demand. The markets were also watching Italian Finance Minister Tria’s attempts to find a compromise over tax plans  and the Euro gained support from the strong Eurozone current account position. The Euro was able to push to 1.1170 against the Dollar as US sentiment eroded. Risk sentiment remained weak overnight allowing the Euro to edge up to 1.1175, with the Dollar hampered by US economic concerns.

USD

 

The 10-year Treasury yield touched a new 20-month low on Friday amidst growing fear of a tariff-led global recession. The move to ratify the United States-Mexico-Canada Agreement could be thrown in a disarray following the latest announcement. Meanwhile, escalating trade tensions between the US and China started to bite into sentiment with the latest Chinese manufacturing PMI falling into a contraction zone.

 

The US PCE prices data recorded an increase of 0.2% for April, in line with consensus forecasts, with the year-on-year increase at 1.6% from a downwardly revised 1.5% the previous month. The Chicago PMI index was below consensus forecasts for the third month in succession with a limited recovery to 54.2 from 52.6 previously. The revised University of Michigan consumer confidence declined to 100.0 from the provisional reading of 102.4 as the expectations component moved significantly lower. Subdued inflation data maintained expectations that the Federal Reserve (Fed) could cut interest rates later in 2019. There were also increased fears over damage to the US economy from a fresh round of tariffs and this would also increase the potential for the Fed to relax monetary policy.

 

As US sentiment eroded, the Euro was able to make net gains to the 1.1170. We expect the currency market to move with a cautious bias with month-end rebalancing flows dictating the pace. Investors are seeking the refuge of safe-haven assets.

 

Data to watch

 

07:55    EUR Markit Manufacturing PMI (May)

08:30    GBP Markit Manufacturing PMI (May)

13:45    USD Markit Manufacturing PMI (May)

14:00    USD ISM Manufacturing PMI (May)

14:00    USD ISM Manufacturing PMI (May)

14:00    USD ISM Prices Paid (May)

23:01    GBP BRC Like-For-Like Retail Sales (YoY) (May)

 

 

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