What you need to know on Monday, May 17:
The greenback fell on Friday, following worse-than-expected US data. Retail Sales showed no growth in April, down from 10.7% in the previous month, while the core reading fell 1.5%. Also, the preliminary estimate of the Michigan Consumer Sentiment Index resulted in 82.8 in May, down from the previous 88.3 and the expected 90.4. Also, Industrial Production rose a modest 0.7% in April.
Speculation that the US Federal Reserve would need to tighten its monetary policy amid increased inflationary pressures cooled down, to the detriment of the American currency. Stocks surge while government bond yields retreated.
Most dollar’s rivals advanced, with EUR/USD and GBP/USD poised to extend their gains. Among commodity-linked currencies, the aussie is the weakest and the CAD the strongest.
The optimistic market sentiment will be tested at the weekly opening by Chinese data. The country will publish April Retail Sales and Industrial Production, both expected to have advanced at a slower pace than in March.
In the UK, Prime Minister Boris Johnson offered a mixed message over coronavirus developments. On one hand, he said that the government does not believe it would need to delay reopening, as there’s no evidence of stress in the health system. Nevertheless, he noted that there are some important unknowns and that they will remain vigilant.
Over the weekend, the leaders of Ireland and PM Johnson met to discuss a smooth trade relationship with Northern Ireland. The UK macroeconomic calendar has nothing to offer until next Tuesday when it will publish employment-related figures. Brexit-related tensions keep putting a lid on the pound.
Spot gold surged to a fresh three-month high of $ 1,845.88 a troy ounce, ending the week with substantial gains at 1,843. Crude oil prices also advanced on Friday, with WTI settling at $ 65.50 a barrel, unchanged for the week.
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EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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