Daily Market Report,
Good afternoon all and sorry for the late catch-up. On the day we woke up to the terrible news from Manchester. Our thoughts go out to all the families.
Cable (GBP/USD) witnessed aggressive selling on the European open, as the pound was sold by some 0.4% amid a renewed risk-off wave, before recovering some ground.
The bounce in the major is mainly driven by renewed optimism seen around the European equities. Meanwhile, markets appear to ignore downbeat UK public sector net borrowing data, therefore, having limited impact on current rates.
United Kingdom Public Sector Net Borrowing registered at £9.648B above expectations (£8.15B) in April.
However, it remains to be seen whether cable can sustain the recovery from recent lows, as investors remain on the back foot, in the wake of the Manchester terror blast.
Also, increasing uncertainty over the upcoming UK general elections scheduled on June 8, especially after the UK Prime Minister Theresa May suspended the election campaign after the terror attack.
With the UK data out of the way, focus now remains on the UK inflation hearings and US datasets due on the cards later today.
From across the pond, the latest revelations from the New York Times, with allegations that Donald Trump urged ex-FBI Director James Comey to back off a probe into former national security advisor Michael Flynn.
This scandal has given rise to serious concerns about a possible impeachment. In this context, risky assets and the US dollar went on the retreat, to the benefit of the bond markets. The DXY dollar index pulled back below 97.50, while expectations of a hike in the Fed Funds rate in June subsided, the tax reform promised by Donald Trump being seemingly in jeopardy.
Does the US dollar still have downside potential? This is possible if there are new revelations that further weaken Donald Trump. However, some analyst think an impeachment does seem unlikely at this stage. Such a procedure would have to be initiated by the Republican Party since it is in the majority in both Houses. As yet, it would not be in the Party’s interest to launch such a procedure, especially since proving there was an obstruction of justice would be difficult. John McCain, an influential party member, sees no point in launching such a procedure. To appease the Democratic Party, ex-FBI Director Robert Mueller has been appointed as special counsel charged with investigating possible collusion between White House staff and Russia.
In this context, the US dollar should stabilise in coming days before recovering as the Federal Reserve goes about normalising its monetary policy. Delays pushing through the tax reform should not bring into question US growth (slightly more than 2%) or the tightening of the Federal Reserve’s monetary policy.
Statistics to watch out for today
No Major economic releases this afternoon.
Have a great day all.