9th May 2017 Market Update
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?? GBP – With an absence of UK data supporting the pound, the short lived rally on the French election was not enough to drive Sterling past 1.30 against the dollar, as was expected across the board.
With Sterling trading in tight ranges throughout the day attention shifted to this week’s Bank of England meeting and election campaign. With Sterling having jumped more than 3 percent against the dollar since Theresa May called for a surprise early national vote in June, investors expected this to give her a stronger stance in on ongoing Brexit negotiations.
That being said, markets did react to mute this sentiment even as conservatives won their decisive victory in local elections on Thursday, which now points to uncertainty on how the UK will be able to cope with our historic break from Europe and the widely expected volatility of negotiating our terms for doing so.
?? EUR – No real news on the data front for the euro, however the currency did fall from six month highs against the dollar following Macron’s widely expected win. Macron’s victory did briefly push the euro above 1.10 against the dollar on Sunday which was the highest level since the U.S presidential election in November.
Ultimately, Macron’s defeat of nationalist Le Pen became more symbolic to investors who feared another upheaval after Brexit and installation of Donald Trump.
?? USD – With the main news for the dollar expected on Friday in the form of Inflation and retail sale reports, the dollar remained range bound throughout the day. However, Federal Reserve president Loretta Mester did remain cautious against waiting too long to raise interest rates while she spoke in Chicago yesterday.
Stating the FOMC should remain very vigilant against falling behind as they continue to make progress on their goals, especially given the low level of current interest rates and the large size of their balance sheet. She went on to caution that putting off rate rises for much longer will risk another recession.
07:00 – German Trade Balance & Industrial Production m/m.
07:45 – French Gov Budget Balance.
15:00 – JOLTS Job Openings.
21:15 – FOMC Member Kaplan Speaks.
Our View: With much of the French election hype priced in, markets will now be looking at comments from the Bank of England’s inflation report on Thursday. Focus will be on whether the Bank can perform a balancing act to set interest rates and agree on new forecasts for the UK as we go through another election and further Brexit talks.
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