3rd May 2019 Market Update
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🇬🇧 GBP – The Bank of England yesterday deviated from other major Central Banks around the world by signalling that further interest rate hikes will be required to prevent the economy overheating in the next three years. Accordingly, this year’s growth forecast was increased from 1.3% to 1.6%. The Monetary Policy Committee stayed in “wait and see mode” for the time being however by voting unanimously to keep rates on hold. Analysts had largely expected a more hawkish tone from the Bank of England which meant that after a rapid spike and correction, the Pound settled into a range seen earlier in the day which surprised some who cited the dominance of politics on Sterling currently.
Today’s focus will be on the Services PMI figures which show the strength of the largest sector of the UK economy in April. Both Manufacturing and Construction figures were positive earlier in the week and so analysts will be looking for an improvement in the Services reading after falling into negative territory in March. The Pound is likely to react favourably if the Services sector is shown to be resilient.
🇪🇺 EUR – German Retail Sales initially boosted the Euro yesterday after the results were better than expected but it was overshadowed by subsequent data. Manufacturing PMI figures will have concerned the key European economists as they showed that the sector continued to contract. Germany’s figures were particularly bad and will fuel worries that Europe’s largest economy will slip into recession. The Euro fell against a strong Dollar but remained steady against the Pound.
Inflation figures are released for the single bloc this morning and are expected to improve slightly which may provide welcome relief for the struggling Euro. It is the only data of note to finish the week for Europe and will define the day.
🇺🇸 USD – The US Dollar continued to gain on Thursday as markets digested the comments from the Fed’s comments on Wednesday evening regarding inflation. Jobless Claims data and Factory Orders results were overlooked by traders as markets instead reduced their expectation of a rate cut which had been gathering momentum. As a result, the Greenback could be ready to continue its recent progress after a pause for breath for the last week, with a Reuters poll indicating that it will dominate currency markets for another 3-6 months before falling away.
Today sees a batch of labour data through the early afternoon for the US Dollar. Non-Farm Payrolls is expected to be lower than previous but the effect on the market is more limited than a few years ago. When combined with Average Hourly Earnings, Unemployment Rate and Services PMI figures, the US Dollar could still The growth forecast was increased from 1.3% to 1.6%.see some volatility to end the week.
GBP: Bank of England provides forward guidance, but exchange rates are largely unaffected
EUR: Risks of a recession increase with poor manufacturing results
USD: Dollar reacts favourably to Federal Reserve’s comments on Wednesday
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