Dollar marches higher but Euro wallows on German inflation data

Today’s macro highlights:

  • GBP - Consumer Credit (March)
  • USD - ISM Manufacturing (April)

Dollar marches higher but Euro wallows on German inflation data

German inflation data was perhaps the data point that provided the most significant impact for currency markets yesterday, offering some much-needed relief for the Pound as a result. The reading from Germany is seen as a good early indicator of the pan-Eurozone print that will be released on Thursday and the fact price growth is cooling does pose a problem for the ECB in their quest to start tightening monetary policy. There are some suggestions that seasonal factors such as the timing of Easter could be responsible for depressing this figure, but markets are seemingly taking the glass half empty view here. GBP/EUR tacked on around two thirds of a cent from yesterday’s lows as a result.

Although UK monetary policy is going to remain very much focused on the broader macroeconomic picture, today sees the release of the UK consumer borrowing figures. Secured and unsecured borrowing stats will be published at 9.30am BST and this provides some valuable insight as to what the general public make of the economic outlook. Although wage growth in the UK is at last outstripping inflation, spending data showed consumers being cautious with cash. A repeat of that in today’s readings - i.e. signs debt is being paid down - could well be construed as the canary in the coal mine when it comes to uncertainty over the broader economic outlook. A backdrop like this will do nothing to sway the Bank of England into taking a more hawkish approach over rates.

There are a couple of notable readings out of the US this afternoon, although the dollar appears to remain on an upward trajectory regardless. Attractive US treasury yields will continue to lure buyers and perhaps that’s no surprise if you can get almost a 3% return completely free of risk, but the ISM manufacturing survey for April will be published at 3pm BST. This number contains some important clues over how businesses are assessing risks relating to metrics like inflation and the jobs market and although expansion is expected here (that’s a number greater than 50), a month-on-month slow-down is also on the cards. Any decline that’s too marked could knock the dollar at least in the short term - it is after all sitting on some notable recent gains.

There’s also a US construction spending reading due at 3pm BST. Expectations are for some solid growth here - up 0.5% - so anything that falls short of that could raise concerns that the US economy isn’t perhaps running quite as well as some may hope. Again, against the backdrop of an uptrend for the greenback, the short term risks do appear to be weighted on the downside.

GBP/USD
Cable has recovered a little from yesterday’s lows but we remain around the levels posted in early March and a break lower does open up the way for a return to the mid 1.30’s.

EUR/USD
The pair has been trading in a very tight range through the Asian session with the highs posted right at the start of the year appearing to provide a degree of support at least for now. However, with dovish signals continuing to emerge from the Eurozone and a far more hawkish note being evidenced in the US, a return to levels from Q4 of 2017 in the 1.16-1.17 area could yet emerge.

GBP/EUR
In the wake of yesterday’s modest rally, the pair is currently consolidating. Although the data releases will be important in providing the next direction, political risk for the UK government appears to be mounting too, both internally and in terms of the Brexit negotiations. A break back below 1.10 certainly shouldn’t be ruled out.