Weekly Review May 8
Movements in commodity prices were an important focus during the week as oil prices dipped to five-month lows and metals also came under pressure, but there was no deterioration in wider risk appetite as equity markets held firm.
The US ISM manufacturing index declined to 54.8 from 57.2 previously while the non-manufacturing index strengthened to 57.5 from 55.2. The core PCE price index declined to 1.6% in the year to March from 1.8% previously and below the 2% Fed target.
The Federal Reserve left interest rates on hold at 0.75-1.00% following the latest policy meeting. The committee was optimistic surrounding the outlook and expected weaker first-quarter GDP growth to be transitory. US non-farm payrolls increases 211,000 for April compared with expectations of a gain close to 190,000, although there was a downward revision to the March figure to 79,000 from 98,000.
Unemployment declined to a fresh 10-year low of 4.4% from 4.5% with average earnings growth held to 2.5% over the year. The US House of Representatives passed the healthcare reform bill which will now be debated in the Senate.
The dollar overall weakened to six-month lows below 98.50.
All three UK PMI releases were stronger than consensus forecasts with the services-sector index at 55.8 for April from 55.0 in March.
There were strong gains for the Conservative Party in the local elections, reinforcing expectations that Prime Minister May would gain a strong majority in the June 8th General Election. The campaign was overshadowed by strong rhetoric between the UK government and EU negotiators amid their demands for a substantial UK financial settlement of up to EUR100bn.
EUR/GBP hit resistance close to 0.8500 while GBP/USD hit six-month highs above 1.2980.
The Euro-zone PMI composite index strengthened to a 6-year high for April.
Opinion polls suggested a stronger lead for Macron ahead of the Presidential election vote after out-performing Le Pen in the TV debate. The early projections confirmed that Macron would win the election and that he was likely to win by a wider than expected margin with around 65% of the vote.
German Chancellor Merkel won a strong victory in the Schleswig-Holstein state election.
The Euro pushed to six-month highs above 1.1000 after the French election projections.
The Reserve Bank of Australia left interest rates on hold at 1.5% following the latest policy meeting.
New Zealand employment data was stronger than expected with unemployment declining to 4.9% from 5.2% previously and inflation expectations strengthened.
There was a smaller than expected increase in Canadian employment of 3,200 for April, but the unemployment rate fell to 6.5% from 6.7% and equalling the lowest level for over two years.
Commodity currencies overall declined sharply during the week with AUD/USD hitting 4-month lows below 0.7400 before a tentative recovery.
The Chinese PMI data was weaker than expected which caused some concerns surrounding the growth outlook.
There was a sharp decline in oil prices during the week with benchmark Brent crude sliding to 5-month lows below $48.00 p/b before a corrective recovery to $49.50.
There was also sharp selling pressure in industrial metals prices. Gold prices weakened to 6-week lows below $1,230 as overall defensive demand weakened.
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