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UK Inflation, EU Elections and the FED Minutes Put the GBP and USD in Focus

Bob Mason
UK Inflation and European politics to whipsaw the Pound ahead of the FED monetary policy meeting minutes later today.

Earlier in the Day:

Economic data released through the Asian session was on the heavier side this morning. Key stats included New Zealand 1st quarter retail sales figures, Japan’s April trade data and March core machinery orders. Later in the morning Australia 1st quarter construction work done numbers also provided direction.

For the Kiwi Dollar,

Quarter-on-quarter, retail sales increased by 0.7% in the 1st quarter, following a 1.7% rise in the 4th quarter. Forecasts were for a 0.6% rise in the quarter.

According to figures released by NZStats,

  • A pickup in department store and hardware and building supply sales were attributed to the rise in retail sales.
  • Department store sales jumped by 4.4%, with hardware, building and garden supply sales up by 3.0%.
  • Weighing on sales were a 4.7% fall in accommodation and a 5.7% slide in pharmaceutical and other store-based retailing.
  • While sales volumes were on the rise, sales value increased by just 0.2%.

The Kiwi Dollar moved from $0.65071 to $0.65075 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.09% to $0.6501.

For the Japanese Yen,

Japan’s trade surplus narrowed from ¥528bn to ¥60.4bn in April. Forecasts were for a narrowing to ¥203.2bn.

According to figures released by Ministry of Finance, exports fell by 2.4% to ¥6.659bn, while imports jumped by 6.4% to ¥6.598bn.

  • Exports to China fell by 6.3%, while exports to the U.S increased by 9.6%.
  • To Western Europe, exports also saw red, falling by 7%, with exports to Germany and the UK falling by 2.1% and 10.4% respectively.

While April trade figures were a negative, March core machinery orders impressed. According to the latest Cabinet Office Survey, month-on-month, core machinery orders increased by 3.8%, coming in well ahead of a forecasted 0.7% fall. Orders increased by 1.8% in February.

Year-on-year, orders slipped by 0.7%, which was better than a forecast 3.4% slide. Orders had fallen by 5.5% in February.

The Japanese Yen moved from ¥110.588 to ¥110.557 upon release of the figures. At the time of writing, the Japanese Yen was down by 0.01% to ¥110.51 against the U.S Dollar.

For the Aussie Dollar,

Construction work done fell by 1.9% in the 1st quarter, following on from a 3.1% slide in the 4th quarter. Forecasts were for a 0.4% rise.

According to the ABS, a 3.9% slide in engineering and a 2.5% fall in residential work done weighed on the headline figure. Also in decline was building work down, while fell by 0.4% in the quarter. Bucking the trend in the quarter was a 3.6% increase in non-residential construction work done.

The Aussie Dollar moved from $0.68788 to $0.8811 upon release of the figures. At the time of writing, the Aussie Dollar was down 0.01% to $0.6882.

The Day Ahead:

For the EUR,

It’s a particularly quiet day ahead on the economic calendar, with no material stats due out today.

While there are no material stats due out, ECB President Draghi is scheduled to speak later this morning and could provide some early movement.

Outside of the stats, the influence of the U.S – China trade war will be ever-present. From Brussels, the EUR has yet to show any response to the EU parliamentary polls. Things could change as the week progresses, however, should anti-EU sentiment appear to be in the hot seat as the UK and the Netherlands vote tomorrow.

At the time of writing, the EUR was down by 0.02% to $1.1159.

For the Pound,

It’s another relatively busy day ahead on the economic calendar. April inflation figures are due out of the UK later this morning.

Forecasts are for the annual rate of inflation to accelerate from 1.9% to 2.2% in April, which is Sterling positive. The closely watched wholesale inflation figures are also forecasted to bounce, with the PPI Input forecasted to rise by 1.3% in April, month-on-month.

In line with or better than forecasted figures would support the BoE’s latest outlook on inflation and monetary policy.

While any pickup in inflationary pressure will be positive for the Pound, the direction remains hinged on this week’s EU Parliamentary elections, Brexit and who’s next in line for the top job.

For now, the markets appear to be pricing in a Boris Johnson, no-deal Brexit combo. It all hinges on this weekend’s results. If the Tories get slaughtered, the Pound may well suffer the same demise.

At the time of writing, the Pound was up 0.06% to $1.2714.

Across the Pond,

There are no material stats scheduled for release through the day. With no material stats due out, the focus will be on FOMC member chatter ahead of the FOMC Meeting minutes due out later this afternoon.

Will the minutes reflect any bias towards a 4th quarter rate hike or will FOMC members be comfortable with inflation and economic indicators of late?

We’ve yet to see any dire numbers from the U.S, but as the trade war continues, there may be some raised eyebrows among the more dovish FED members…

At the time of writing, the Dollar Spot Index was down 0.05% to 98.013.

For the Loonie,

It’s a busier day ahead. March retail sales figures are due out later this afternoon. Figures in line with or better than forecast will likely provide support.

The numbers will need to be impressive, however, to give the BoC reason to be more hawkish at next week’s BoC monetary policy meeting.

Outside of the numbers, crude oil prices will also influence later in the day.

The Loonie was up 0.01% at C$1.3404, against the U.S Dollar, at the time of writing.

This article was originally posted on FX Empire