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Weekly Review May 15


Date of publication: May 15, 2017 | Author: Tim Clayton

President Trump again grabbed the headlines with the sacking of FBI Director Comey which re-ignited Washington tensions, although the US data releases had a greater overall market impact.

US

The headline US retail sales data was weaker than expected with a 0.4% increase for April compared with an expected 0.6% gain and the underlying increase was held at 0.3%. There was, however, an upward revision to March’s data which limited the impact.

Consumer prices increased 0.2% for the month and with a core increase of 0.2% of the month with a 1.9% annual increase from 2.0% previously.

Futures markets indicated that the chances of a June Fed rate hike had dipped to below 80% from close to 90% ahead of the data which helped push the dollar weaker.

US political developments were again a significant focus during the week with President Trump’s sacking of FBI Director Comey which created speculation that the firing was due to developments in the investigations into Russian interference in the 2016 election. There was speculation that the political tensions would delay tax reform measures and undermine the economic outlook.

The dollar index still made net headway on the week as the Euro was hit by profit taking.

UK

The UK industrial production data was weaker than expected with a 0.5% decline for March as manufacturing output also retreated on the month.

The latest trade data recorded a wider than expected monthly deficit and construction output also fell on the month.

The Bank of England left interest rates on hold at 0.25% following the latest policy meeting. There was a 7-1 vote for the decision as Forbes again called for an immediate rate increase. There was a small increase in short-term inflation forecasts with a slight cut to the 2018 and 2019 projections.

The central bank expected that interest rates would increase more than the 0.25% rate increase implied by the yield curve, but there was no support for the UK currency.

Sterling overall lost some ground on the week, especially after hitting resistance close to 1.3000 against the dollar while EUR/GBP consolidated just below 0.8500.

Euro-zone

There was little in the way of follow-through reaction to the French Presidential election result with the outcome already priced in.

ECB President Draghi remained more optimistic surrounding the economic outlook, but maintained a generally dovish tone with comments that the very supportive monetary policy needed to be sustained to secure medium-term inflation gains.

There were no major Euro-zone data releases during the week while the latest CFTC data recorded a net long, speculative Euro position for the first time since May 2014.

International

The latest oil inventories data recorded a larger decline than expected which triggered a recovery in oil prices with Brent back above the $50.00 p/b level.

There was only a limited reaction to the Australian budget with Australian currency moves dominated by trends in commodity prices. Fitch affirmed the AAA rating.

The Canadian dollar was undermined by concerns surrounding the banking sector and on-going trade concerns, but USD/CD hit selling interest above 1.3750.

The Reserve Bank of New Zealand left interest rates unchanged at 1.75% following the latest policy meeting. There was no move to a tightening bias and the overall tone was more dovish than expected which undermined the New Zealand dollar.

North Korea tested another long-range ballistic missile which triggered some defensive yen support.

 

 timTim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including Investing.com and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics. 

 

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