Heeeeeerrree’s DONALD!
Yesterday we said that the politics of the world seemed to have calmed down. That lasted a little less than a day with focus once again bearing down on the Trump administration following reports that President Trump leaked classified information on Isis to the Russian Foreign Minister when the latter visited recently.
The reports have been denied by the administration and the National Security Advisor however USD is on the back foot this morning, popping above 1.10 in EUR/USD terms overnight. Similarly we have seen the USD give up ground against commodity currencies as gains for oil and other tradeable commodities boost sentiment towards countries tied to their extraction.
Merkel appoints a PM and visits Merkel
Sterling has not been able to gain and has found itself falling against the single currency. Investors bought the euro yesterday on the belief that the Macron/Merkel axis will be beneficial for the European Union and that both will be in power still once the German elections are out of the way in September. Macron’s appointment of a Prime Minister who was previously part of Les Republicains has solidified expectations that process and progress within the legislature will be aided by the party on the right of French politics.
Inflation but no BOE reaction means GBP weakness
Sterling may also struggle for a leg-up this morning despite data at 09.30 expected to show that inflation pressures continue to build. CPI is forecast to have risen to 2.6% from 2.3% in March but digging into these figures suggested that the timing of the Easter holidays played a delaying factor on certain price increases and the upwards trend of price gains will continue in April. We expect the weak pound, increases in commodities and the generalised pattern of global reflation to have contributed to a pickup in CPI this morning.
We see sterling weakness today given the relative level of ambivalence shown by the Bank of England last week, gains in CPI at the moment are unlikely to prompt a response in rates. As we have been saying for months now the true articulation of the impact of a rise in inflation will be borne out by the wage numbers due tomorrow morning but reports this morning the latest CIPD/The Adecco Group Labour Market Outlook survey shows that workers are in for further pain with employers only expecting to award median pay rises of just 1% over the next year ahead.
Elsewhere
Elsewhere we are looking for the German ZEW survey to pull higher courtesy of the positive sentiment generated by the then likelihood of a Macron win in the French Presidential elections.