Global Themes

  •  Pound can’t break key levels
  •  Trade wars to scupper strong dollar?
  •  Eurozone escapes another election?
  •  RBA hold rates but maintain a positive outlook


Pound can’t break key levels 

Sterling rallied yesterday against the US Dollar and the Euro after a stronger than expected construction PMI number, before running out of steam and dropping off after failing to break key psychological levels again. The construction PMI release for May came in at 52.5, beating a forecast of 52.0 and matching the number for April. Subsequently, GBP/USD reached a high of $1.3399 and GBP/EUR €1.1448. However, the inability of the British Pound to break $1.34 and €1.1450 against the dollar and Euro respectively could mean risk is still skewed to the downside.

Today at 09:30am, the important services PMI number needs to at least hit the predicted level of 52.9 for May, which would beat the April figure of 52.8, to help support Sterling at current levels and start to climb again. If the number disappoints then we could see a quick return to the $1.32 handle and halt any attempts at breaking the narrow trading range against the Euro.

  •  It was reported yesterday in the Times that the Brexit legislation, which has been heavily amended by the House of Lords, will be debated and voted on in the House of Commons on the 12th of June (source: Reuters). It will be one of the most important days since the UK voted to leave the EU in 2016 as the Lords amendments include provisions for the UK to stay part of the customs union. The voting on the legislation has the potential to overturn the changes made by the Lords. However, with the cabinet and parliament split on the best course forward we could see a situation where the negotiating team are working on proposals and legislation for laws they don’t want to be a part of. Defeats in the commons for the government on these issues would also create huge pressure on Prime Minister Theresa May’s position. The ongoing uncertainty is a big part of the reason the pound cannot break out of the current trading ranges.


Trade wars to scupper strong dollar?

The US Dollar has been on a nice run for most of this quarter, but could the good times be over? Growing concerns between the US and China around tariffs are intensifying, putting pressure on the dollar. China’s resilience and willingness to return the favour by imposing tariffs on US goods could turn out to be a medium to longer-term concern for the US economy. This could also be a topic of discussion at next week’s Federal Reserve (Fed) meeting. The meeting is to announce the decision on interest rates, which many market participants believe to already be priced in. The key takeaway will be forward guidance and any hints of future rate rises from the Fed.

EUR/USD remains subdued below the $1.17 level this morning. The Euro recorded a daily positive gain yesterday, however, the overall momentum still seems to be in the dollars favour. Any upside could be limited at $1.19, however, any additional dollar strength could see the pair potentially fall as low as the $1.15 handle.

  •  This afternoon sees the release of ISM Non-manufacturing PMI for the period of May. The number is expected to rise to 57.5 from 56.8, if it comes in line with forecast we could see some dollar support. At the moment though economic data seems to be of less concern to currency markets, with attention turned more towards politics and global issues.


Eurozone escapes another election? 

As the political uncertainty in Italy looks to be easing in the short term, Spain’s political woes come into the spotlight. An aide of new Prime Minister Pedro Sanchez rejected opposition calls for a snap election, as the minority government prepares to tackle a budget vote and the Catalonia crisis. The Prime Minister’s Socialist party was officially put into office on Friday and holds just 84 of 350 parliamentary seats. Jose Luis Abalos, often described as Sanchez’s right-hand man said, “it’s clearly unusual to govern with 84 lawmakers but the political situation remains very fragmented and everything suggests a new election wouldn’t fix that” (source: Reuters). For now, it seems the Euro and the Eurozone will escape more political woes, however, if a snap election is called further down the line, this could cause further volatility for the Euro.

  •  Today, services PMI data for May will be released across Europe, with the Eurozone’s number being released at 10:00am. It is expected that the services PMI is to remain flat at 53.9. Alongside the service's release, retail sales will be published for both m/m and y/y, it is expected that there will be growth both.


RBA hold rates but maintain a positive outlook 

The Reserve Bank of Australia (RBA) held interest rates at record lows of 1.5% for its 22nd consecutive meeting. However, the bank still saw a positive outlook for the country indicating that stronger exports and increases in government spending would help extend its 26-year run without a recession. The RBA forecasts GDP for 2018 & 2019 to accelerate slightly above the 3% mark. Concerns for the central bank are household consumption, which accounts for about 57% of GDP, slow wage growth and elevated levels of household debt.

  •  GBP/AUD fell over 1.5% yesterday from AU$1.7659 to AU$1.7391, however, this morning we resume back in the mid-AU$ 1.74 region. This currency pair has fallen over 10 cents in the last 27 days of trading.

*The rates displayed by our free currency converter are neither "buy" nor "sell" rates, but interbank rates, the wholesale exchange rates between banks. Interbank rates don’t include the spreads, handling fees, and other charges that may be assessed by foreign exchange providers. Please note that, as such, these rates are provided for indicative purposes only. Prior to booking a transaction, Western Union Business Solutions will advise you of the actual rate then available for a particular currency transaction.

Deliver the Daily Currency Market Analysis to my Inbox

Published five days a week, this newsletter provides day-to-day trends and activities affecting the market in easy-to-understand snapshots.