With no significant domestic economic data releases and the impending bank holiday weekend, Friday morning was a dull affair for the Pound as the Euro remained glued to 1.1500. Sterling did experience a sharp decline to lows near 1.3800 against the Dollar as traders adjusted positions. Futures market data recorded an increase in bets on Sterling strengthening, limiting the scope for further buying support. Markets remained cautious ahead of local elections for English councils this Thursday and the Scottish parliamentary elections. An overall majority for the SNP would increase the chances of another Scottish independence referendum. The Pound gained support form a government statement that travel restrictions would be eased from May 17th, moving Sterling above the 1.3900 level to the Dollar while the Euro retreated to 1.1534.
This morning the Pound was unable to extend it’s gains and opens back below 1.3900 to the Dollar.
The US ISM manufacturing index declined to 60.7 for April from 64.7 previously and below consensus forecasts of 65.0, although it remained at historically very high levels. There was also a slowdown in the rate of new orders and production growth. Employment increased at a slower rate, but the inflation index recorded the strongest reading since July 2008. There were also widespread issues with supply-chain difficulties which curbed growth potential.
New York Federal Reserve (Fed) President Williams stated that it was important not to overreact to the inflation jump as the economy improves and that the coming inflation is likely to be transitory. He added that not enough good news had been seen to change the Fed’s policy stance. Chair Powell noted the improved outlook, but also warned that there were increased inequalities and sustained damage to lower-income groups. Uncertainty over Fed policy contributed to market volatility.
The European Commission proposed that Member States ease the current restrictions on non-essential travel into the block for those who have been vaccinated. The travel ban has been in place for over a year amid the continuous surge in COVID-19 cases.
The announcement raised prospects for the gradual reopening of the economic activity, which should boost the region's growth in the near term. This, in turn, provided a modest lift to the shared currency and pushed the EUR/USD pair to fresh session tops, beyond mid-1.2000s.
Posted in Daily Market News on May 4 2021