Sterling
Sterling stuttered yesterday morning as the UK budget deficit for April came in wider-than-expected.
The Office for National Statistics (ONS) reported that the government borrowed £10.4 billion last month to balance the books. A deceleration in tax intake helped push the figure considerably higher than the market consensus of £8.9 billion, and leaves Britain’s national debt at a colossal £1.7224 trillion, or 82.6% of GDP.
The data weighed on demand for the Pound, as did the devastating attack in Manchester and the recent bout of volatility in the general election polls.
Euro
The Pound to Euro exchange rate softened slightly yesterday morning, touching a new 50-day low, as a trio of British concerns reduced demand for the UK currency.
The single currency also benefitted from a robust Eurozone manufacturing PMI print of 57.0, which outpaced expectations of 56.5, and an upbeat German IFO business climate score of 114.6, which beat forecasts of 113.1.
Later in the day German finance minister Wolfgang Schaeuble warned: ‘the British will learn Brexit was a mistake’. Strangely, Sterling pairs, including GBP/EUR, rocketed higher following the remarks – although it is unlikely that the threat of a rough EU trade deal was actually behind the Pound’s rallies. It’s more likely that trade volumes had thinned following the tragic attack in Manchester, which in turn accentuated market moves around the time of the 4pm fix (when certain financial benchmarks are set).
US Dollar
‘Cable’ hovered below key psychological resistance for most of yesterday’s session.
The US Dollar received a mixed bag of data, with services output excelling at 54.0 and manufacturing activity underperforming at 52.5. This left market sentiment towards the ‘Greenback’ fairly neutral, but we could see more pronounced currency moves this evening when the Federal Reserve releases its latest minutes report.
Markets are currently pricing an 83% chance of a 25-basis point rate hike from the US central bank in June, meaning there is scope for US Dollar selling if Fed officials strike a cautious approach. On the other hand, we could see the ‘Greenback’ push ahead if a hawkish message drives rate hike bets even higher.
Canadian Dollar
The Pound to Canadian Dollar exchange rate traded within a small pocket yesterday as expectations of an OPEC-led production cut were upheld. The price of Canada’s most-lucrative export was also influenced by a drawdown of 1.5 million barrels in US inventories, which gave ‘black gold’ a temporary boost.
Australian Dollar
Sterling strengthened against the Australian Dollar yesterday as Bank of Japan Governor Haruhiko Kuroda noted that uncertainty around the ‘natural rate of interest’ made it difficult for central bankers to decide on policy plans. The BoJ said that global central banks had been persuaded to adopt accommodative policy plans that neither stimulated nor constrained growth.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate touched a monthly low yesterday, helped by news that the Antipodean nation’s trade surplus printed at NZ$578 million, up from estimates of N$267 million. Indeed, the April figure marked a two-year high and was in fact the highest figure for the month of April since 2011.
Data Released
13:45 EUR ECB President Draghi speaks in Madrid High
15:00 CAD Bank of Canada Rate Decision (24 MAY) High 0.50%
USD FOMC Meeting Minutes (3 MAY) High