Signs continued to point towards a deepening squeeze on consumer spending and real pay, with average weekly earnings proving weaker-than-expected in the three months to April. As inflation continues to markedly outpace wage growth the pressure on household finances looks set to mount further. This does not bode well for the UK economy, given its high reliance on strong levels of consumer spending. As the Bank of England (BoE) is likely to reiterate its neutral bias on Thursday further weakness could be in store for the Pound.
April’s Eurozone industrial production figures proved mixed, limiting the strength of the single currency. Confidence in the strength of the domestic economy remains limited, particularly as inflationary pressure appears to be easing once again. The appeal of the Euro looks set to remain muted ahead of tomorrow’s Eurogroup meeting, which it is hoped will see an agreement to disburse the next tranche of Greek bailout funds. If creditors fail to agree, however, EUR exchange rates could slump sharply on the back of renewed fears of a Greek default.
Demand for the ‘Greenback’ has remained relatively muted ahead of tonight’s Federal Open Market Committee (FOMC) meeting. As markets have already effectively priced in the impact of an imminent interest rate hike the upside potential of the US Dollar is decidedly limited at this juncture. However, if policymakers deliver a dovish hike and indicate that monetary policy is likely to be tightened at a less aggressive pace the ‘Greenback’ could weaken further.
Continued weakness in the Westpac consumer confidence index was not enough to dent the Australian Dollar on Wednesday, despite its negative implications for the wider economy. A general mood of risk appetite helped to shore up the antipodean currency ahead of the latest Fed policy meeting. Tomorrow’s consumer inflation expectation report could offer greater support to the ‘Aussie’, as long as the inflationary outlook proves positive. Also in focus will be May’s labour market data, which could equally provoke volatility for AUD exchange rates.
New Zealand Dollar
In spite of the first quarter current account balance falling short of forecast the New Zealand Dollar nevertheless trended higher across the board on Wednesday morning. As the current account returned to a state of surplus this still indicated an improvement, boosting confidence in the health of the New Zealand economy. With expectations high for tonight’s gross domestic product report the ‘Kiwi’ has made gains against the majors, as the economy is forecast to have seen growth of 0.7% in the first quarter.
Although the odds of the Bank of Canada (BOC) opting to raise interest rates in the coming months have increased sharply since the start of the week the ‘Loonie’ has struggled to maintain its bullish run. As the International Energy Agency (IEA) noted that the oil oversupply glut is likely to persist well into 2018 the mood towards the commodity-correlated Canadian Dollar soured somewhat. If the latest US inventories figures show a further build-up in stockpiles then CAD exchange rates could return to a general downtrend.
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