Weekly Wrap – The Pound Stole the Show at the Expense of the Dollar

The Stats

The economic calendar was on the busier side in the week ending 3rd May.

A mixed bag of stats saw the Dollar reverse the previous weeks gains, in spite of yet another shift in sentiment towards monetary policy.

For the week, the greenback fell by 0.57%, partially reversing a 0.64% gain from the previous week. In spite of the pullback, the Dollar remained up 1.47% year-to-date.

While economic data out of the U.S delivered a mixed set of results, economic data out of the Eurozone provided some support to the EUR.

While the EUR looked to recapture the $1.12 handle, the Aussie and Kiwi Dollar struggled throughout the week. In contrast, both the Pound and the Loonie closed out with gains, albeit for different reasons.

A total of 68 stats were monitored through the week ending 3rd May.

Of the 68 stats, 31 came in ahead of forecasts, with 29 coming in below forecasts. Just 8 stats were in line with forecasts through the week.

Looking at the numbers, out of the total 68 stats, 27 economic indicators reflected a deterioration from prior. Of the remaining 41, 33 economic indicators reported better figures from previous.

Out of the U.S,

On the data front, key stats were skewed to the positive in the week.

Positive stats released in the week included a jump in personal spending and consumer confidence figures at the start of the week.

Mid-week, ADP nonfarm payroll and factory orders impressed ahead of a particularly busy Friday.

At the end of the week, while a jump in nonfarm payrolls impressed, wage growth failed to deliver, pinning back the greenback at the end of the week. The unemployment rate fell to 3.6%, also a positive for the Dollar along with better than prelim Markit service sector PMI numbers.

On the negative front, weighing on the Dollar through the week was softer Core PCE Price Index figures at the start of the week. Adding to the downside was weaker ISM private sector PMI numbers. Key, however, was the weaker than forecasted wage growth figure that is expected to leave the FED in a holding pattern.

Outside of the U.S, concerns over global economic growth continued to impact. Economic data out of China and Germany supported demand for the safe havens.

On the policy front, the FED delivered a fence-sitting press conference on Wednesday. An unwillingness to take a stance raised doubts over whether the FED would deliver a 4th quarter rate cut.

In the equity markets, the U.S majors were mixed in the week. The Dow ended the week down by 0.14%, while the S&P500 and NASDAQ gained 0.20% and 0.22% respectively. Strong gains on Friday were driven by the softer wage growth and jump in hiring provided the necessary support. Softer than expected wage growth would ease any pressure on the FED to lift rates, which was positive for riskier assets.

Out of the UK,

Key stats through the week included manufacturing, construction and service sector PMI numbers. While manufacturing sector activity slowed in April, both the service and construction sectors returned to expansion.

Of significance was the rebound in service sector activity.

Outside of the stats, BoE Governor Carney delivered a hawkish speech on Thursday. Carney talked of a likely accelerated rate path once the Brexit puzzle has been solved.

On the political front, local elections saw support for the Tory Party slide, which ultimately led to further support for the Pound at the end of the week. The shift in favor of anti-Brexit was the key driver on the political front.

The Pound rallied by 1.99% to $1.3173 in the week.

The FTSE100 fell by 0.37% through the week. While the Pound rally would tend to weigh on the multinationals, the FTSE managed to eke out a 0.4% gain on Friday in spite of a 1.08% Pound rally.

Out of the Eurozone,

The stats were skewed to the positive for the EUR, though a number of red flags remained.

On the positive front was a pickup in Eurozone economic activity, with unemployment figures out of Germany and the Eurozone also positives.

Looking across to the private sector, while France‘s manufacturing sector came out of contraction, Germany’s continued to be a disappointment. The contraction in the Eurozones manufacturing sector contributed to a further decline in business confidence in April. The decline came in spite of a pickup in manufacturing sector activity in Spain and a less marked slowdown in Italy.

In spite of disappointing consumer spending figures out of both France and Germany, inflationary pressures built in the Eurozone. The annual rate of core inflation accelerated from 0.8% to 1.2% in April, according to prelim figures. This remained well below the ECB target, however, leaving the EUR relatively unscathed.

For the week, the EUR ended the week up 0.42%, with a 0.23% gain on Friday coming off the back of a weaker Dollar.

It was a mixed week for the European equity markets. The DAX gained 0.79. In contrast, the CAC fell by 0.37% in the week, with the EuroStoxx600 ended the week down 0.16%.

Elsewhere,

Both the Aussie and Kiwi Dollar saw red in the week, in spite of a partial recovery on Friday. The Aussie Dollar fell by 0.34%, with the Kiwi Dollar ending the week down 0.23%.

For the Aussie Dollar,

While manufacturing sector activity bounced back in April, building approvals slumped in March, with new home sales also seeing red. The Aussie Dollar found support from a weaker U.S Dollar at the end of the week to limit the damage. Sentiment toward RBA monetary policy remains dovish, leading the Aussie Dollar to sub-$0.70 levels before a partial recovery.

For the Kiwi Dollar,

The Kiwi Dollar was under pressure following the release of 1st quarter employment figures. While the unemployment rate fell to 4.2%, the fall was as a result of a slide in the participation rate, with the actual number of employed falling in the 1st quarter. Adding further pressure was a slide in building consents. A slide in the U.S Dollar on Friday limited the damage…

For the Loonie,

The stats were on the weaker side. The economy shrunk by 0.1% in February, month-on-month, the annual growth rate easing from 1.6% to 1.1%. A weaker than forecasted RMPI also weighed on the Loonie in the early part of the week. In spite of the weaker numbers, the Loonie gained 0.26% off the back of a 0.41% rally on Friday to end the week at $1.3420. The gains came in spite of crude oil prices taking a tumble in the week.

For the Japanese Yen,

The Japanese Yen rose by 0.43% against the Greenback to end the week at ¥111.1. A 0.37% gain on Friday delivered most of the gains. Softer than expected U.S wage growth figures weighed on the U.S Dollar on the day. There were no stats out of Japan for the markets to consider, with Japan on holiday through the week.

Out of China,

Out of China, private sector PMU numbers out of China disappointed in the early part of the week. According to the NBS survey, the manufacturing sector stagnated, with the PMI falling from 50.5 to 50.1.