Forex Market Review

XM Investment Research Desk:

Euro firm; sterling holds gains after polls show Tories lead; dollar mixed; yen underperforms

The euro was relatively firm on the day while the yen was one of the worst performing major currency. The dollar was mixed but softer against the majors like the euro and sterling, which helped commodity prices higher.

The dollar index, which gauges the US currency against six major counterparts, fell to a three-week low of 99.37.

Data out of the Eurozone included German PPI which was flat in March, versus expectations of a 0.2% month-on-month gain. It rose 3.1% year-on-year.

The euro rose to its highest level against the dollar since the end of March and extended gains from the low $1.07s to hit a session high of $1.0777. This weekend’s first round of the French elections will likely be a barrier to sustained gain for the euro. The four main candidates are evenly split and polls suggest a high proportion of voters remain undecided.

Sterling stabilized against the dollar after its rally following UK Prime Minister Theresa May’s call for snap elections on Tuesday. Cable hovered around the lower end of the $1.2800 level, holding gains made from sub-$1.26. Today’s YouGov poll showed PM May’s Conservatives are well ahead of Labour by 48-24%, pointing to the possibility of a significant majority for Theresa May in the June 8 election.

The yen was broadly softer and the dollar rose to the 109-yen area as US Treasury yields firmed a little from yesterday. Weekly jobless claims data helped support the dollar. Despite initial jobless claims increasing 10k for the week of April 15, the fact that the number was below 300,000, points to a healthy labour market. Claims have been under this threshold for 111 straight weeks now. Meanwhile, continuing claims were at a 17-year low. Adding support to the greenback were comments from FOMC members. Dallas Federal Reserve President Robert Kaplan said today that two more interest rate hikes this year remained possible, reiterating the Fed’s view.

Other US data showed factory activity in the mid-Atlantic region slowed in April amid a pullback in new orders and shipments.  The Philadelphia Federal Reserve index for current manufacturing activity fell to a reading of 22.0 in April from 32.8 in March. However, the index has been positive for nine consecutive months and remains at a relatively high reading.

The relatively softer dollar was beneficial for commodities. Gold was steady around $1280 an ounce, halting yesterday’s decline. WTI crude stabilized following yesterday’s tumble and pivoted around the $51 a barrel level, while Brent crude hovered at $53 a barrel.

Markets will focus on a speech by Bank of England Governor Mark Carney who will be speaking at an event in Washington DC later. US Treasury Secretary Steven Mnuchin will also be making a speech in Washington DC at a separate event.

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