US-China trade deal
There is mounting speculation that Washington and Beijing are now close to resolving their differences over trade. A summit between the two nations’ leaders to sign an accord could be held at the end of May and has the potential to keep fuelling demand for risk currencies. It’s important to note that a further deterioration in Eurozone economic data or fresh concerns over Brexit are entirely probable. Both scenarios carry negative connotations for the respective currencies.
Opinions remain somewhat divided as to where the Eurozone economy will go next. A number of analysts may be working on the basis that the data from the currency bloc can’t get any worse from here, but there’s also concern from some at the European Central Bank that hopes of a rebound in the second half of the year are overly optimistic. Expect data points to be closely followed in the coming weeks as the market attempts to understand whether data has turned a corner. The Euro, especially against the US Dollar, remains capable of a meaningful move in either direction in the medium term.
The Pound has been trading in a relatively tight range against the US Dollar since Tuesday afternoon. An absence of meaningful Brexit developments is likely hampering the pair, although mounting risk appetite may help limit downside exposure in the near term.
The Euro has been trading sideways against the US Dollar all week. Concerns over the long term outlook does appear to be capping gains and thinner volumes, ahead of the long weekend, which could exacerbate volatility.
The Pound sold off yesterday against the Euro in the wake of marginally worse than expected UK inflation data. The move lower may have been short lived, but until there is more clarity over progress being made regarding Brexit, Sterling seems likely to remain very much on the back foot.