Last week, the Bank of England (BoE) left interest rates on hold but suggested it was still possible monetary policy tightening would occur. This week, Friday will reveal important growth data which could impact the Sterling exchange rate. Markets will also be watching developments in UK politics as Theresa May and Jeremy Corbyn reach a crunch point today. If the talks have failed to yield any progress, political uncertainty will rise once more—increasing the chance of another election, or even a second referendum—which could be damaging for the Pound. Yesterday, the British currency weakened as senior Labour members made comments about recent negotiations between the two parties. Labour’s Shadow Chancellor John McDonnell has suggested that Theresa May had ‘blown the confidentiality we had’ and this had ‘jeopardised’ the talks. Sterling’s decline yesterday was in stark contrast to the increase seen on Friday following Corbyn’s comments that parliament must ‘get a deal done’.
Trade concerns are back in focus, which means markets will carefully analyse economic data from the Eurozone. Today, German Factory Orders data marked its first increase in three months, although the rise was less than economists had anticipated. Concerns have been rising that a slowdown in Germany’s manufacturing sector could continue—as the Eurozone’s largest economy, Germany’s economic performance has the potential to weigh on the currency bloc as a whole. Wednesday could be an interesting day for the Euro when European Central Bank (ECB) President Mario Draghi speaks in Frankfurt. Recent downbeat comments made by the central banker have weighed on the common currency as the bank leaves the door open for potentially more stimulus measures to help the economy.
News that US President Donald Trump plans to implement tariffs on China this week, according to a top trade negotiator, has been moving markets. The US has accused Beijing of going back on commitments made in previous talks, and the US President took to Twitter to escalate the matter, tweeting that he would over double the tariffs. Safe-haven currency the Japanese Yen surged in favour in yesterday’s session after the comments. The Chinese Vice Premier Liu He is due to meet for more trade discussions on Wednesday, but these latest developments may create some adjustments to the original plans. China and the US will both release trade data this week, which markets will be looking at closely. US inflation data is also due out this week.
Today, economic data has revealed Australia’s construction sector downturn has been worsening, declining quickly in April. Jobs in the sector are also being shed, a worrying decline given that the sector employs more than 1.1 million workers, which translates into 9% of the workforce. Peter Burn at Ai Group which collects the data, commented: ‘There are now strong signs that adverse conditions in the broader construction industry are flowing through to sections of the service and manufacturing sectors.’ The Reserve Bank of Australia (RBA) is due to meet on Tuesday to discuss interest rates, and any language changes, comments on rate cuts by the central bank, or a rate cut itself, could influence the Aussie Dollar lower.
The Reserve Bank of New Zealand (RBNZ) is also due to discuss monetary policy this week, and again, market speculation that the central bank could cut rates could also come to fruition. If the Reserve Bank of Australia was to cut rates this month, it would increase the likelihood that the RBNZ might do the same. A cut to interest rates could put heavy pressure on the Trans-Tasman Dollars. The Kiwi Dollar has also been softening as US-China trade tensions heat up, and risk appetite declines.
Yesterday, Bank of Canada (BoC) Governor Stephen Poloz commented on the housing market, imparting confidence that the sector will return to growth later in 2019, and suggesting that higher interest rates haven’t catalysed the recent downturn. The Canadian Dollar has been another currency feeling the impact of the US-China trade debacle. The Canadian Dollar to US Dollar (CAD/USD) exchange rate hit a 10-day low during Monday’s session as trade talks escalated and increased worries that the global economy may feel a heavy impact. Friday will be a big day for Canadian data with the release of the latest Unemployment Rate and Change in Employment stats.