Sterling slips from eight month high, Dollar recovers on Trump speculation

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19 May 2017

Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The US Dollar staged a solid fightback on Thursday, with multi-decade low jobless claims and the re-emergence of a month old video of recently dismissed FBI Director James Comey helping stabilise the currency just above Wednesday’s six month low.

T
he currency has sold-off sharply this week amid the ongoing talk of a possible impeachment of US President Donald Trump. Yesterday’s more robust economic news and reemergence of a video from Comey claiming Trump never asked to end an FBI probe helping the Dollar rally hard against a host of emerging market currencies.

Thursday’s emerging market slump was undoubtedly headlined by the Brazilian Real which suffered from one of its worst trading days this side of the century. The Real plunged by around 7% as markets opened in Brazil following the news that recently appointed President Michel Temer was involved in a fresh corruption scandal. A newspaper report claimed Temer had been recorded discussing illegal payments to silence former speaker Eduardo Cunha and if true, would almost certainly lead to the removal of a second President within a year.

Retail sales data in the UK comfortably beat consensus this morning, suggesting that Britain’s economy may be set to pick up pace following a disappointing first quarter of the year. Headline sales increased to 4.0% from an upwardly revised 2.0%, with the core data (excl. fuel) also increasing to an above forecast 4.5% from 2.8%. Investors viewed this bounce in activity as significant enough to take the Pound above the psychological 1.30 level against the US Dollar for the first time in eight months.

Major currencies in detail

GBP

Yesterday’s impressive retail sales data marked the third consecutive day of better-than-expected economic news out of the UK economy following Tuesday’s inflation data and Wednesday’s 42 year low unemployment.

With economic news improving, the Bank of England suggesting they could hike rates sooner than the market is expecting and the election likely to yield a comfortable majority for the Conservatives, we think there is scope for further gains in Sterling in the coming weeks. There is now very little in the way of technical resistance until around the 1.32 level.

With economic news limited in the UK today, the Pound is likely to be driven by events elsewhere.

EUR

Thursday’s meeting accounts from the European Central Bank suggested that the ECB was keeping its options open as to a change in tone at its coming meeting in June.

Policymakers noted “looking ahead, consideration would need to be given to adjusting the present formulation of the Governing Council’s forward guidance”. Given a recent improvement in economic data in the Eurozone, there is now a good argument to suggest that the central bank will shift its rhetoric next month and take on a slightly less dovish tone that would open up the possibility of a tightening in monetary policy at some point towards the end of the year.

Consumer confidence data will be released in the Eurozone this afternoon.

USD

The slump in the US Dollar this week was brought to a halt on Thursday following a slightly more encouraging set of economic data.

Initial claims for jobless benefits fell yet again last week. The weekly measure dipped to 232,000 from 236,000, while continuing claims declined sharply to their lowest level in 28 years at 1.898 million. Moreover, yesterday’s Philly Fed manufacturing survey blew expectations out of the water. The index surged to 38.8 in May, its second highest level since the early 1990’s.

Notoriously dovish Federal Reserve member James Bullard will be speaking in the US this afternoon. Other than that, today bodes to be a fairly quiet end of the week in the US.