Sterling whacked again


Except for the New York Fed's grandly-named Empire State Manufacturing Index, which improved by eight points to 17.8, its highest level since November, most of the US economic data were unimpressive. MBA mortgage applications were down by 0.6% on the week. Retail sales fell by a monthly 0.2% in April. Industrial production was down by 0.5% in the same month. Away from the NY Fed the only statistic to show any sparkle at all was the NAHB's Housing Market Index. Up three points at 66 it was the best reading since October.

The political focus was mainly on trade. White House sources suggested that the president will postpone tariffs on European auto imports for six months. He also declared a national emergency to ban Chinese electronics company Huawei from doing business in the States. The Chinese commerce Ministry's response this morning was that "national security… should not be used as a tool for trade protectionism".


The euro was part of a cluster that saw five of the top-division currencies - the USD, EUR, CHF, JPY and SEK - huddling together with hardly a space between them. It is unchanged on the day against the USD. Not every one of this morning's euro zone statistics was helpful to the euro but the general effect was positive. The harmonised EU measure of Italian inflation narrowly missed forecast at 1.1% but the older domestic version was on target, also at 1.1%. Trade surpluses for Italy and pan-Euroland both beat forecast.

In Europe the political focus is on politics, with the European elections now just a week away.  With populist and far-right parties on the rise across the continent - and in Britain - analysts expect the next parliament to look very different from the center-left/center-right grand coalitions that have been usual until now.


The Loonie placed second behind the Norwegian krone on Wednesday.  Both received a little help from a 2% rise in oil prices.  To the CAD it meant a 0.4% improvement against the USD.

Canada's economic data had little effect on the currency. Headline inflation ticked up from 1.9% to 2.0%, as expected, while the Bank of Canada's core measure slowed from 1.6% to 1.5%. The core reading was arguably a disappointment in comparison with the forecast 1.8% but investors were not inclined to make a fuss.


Investors have spent the week agonizing about the political disarray in Westminster and yesterday was no exception. There was nothing to report on the Brexit front beyond the usual platitudes about "betrayal" and a "people's vote" and that, if anything, made investors more, not less anxious.  There were no UK economic data for them to ignore.

Consequently the GBP placed last among the major currencies for a third consecutive day, this time without the consolation of the AUD's company. It lost 0.4% to the USD, and is down by 1.3% from its position on Monday morning.


After a relatively busy day the  yen is just about unchanged against the USD. Most of its moves were driven by twitters, rumors and reports about US trade with China, Europe and elsewhere. By and large the JPY is seen as the safe haven when Europe's neck is on the block; the CHF wins when the administration's focus is on the Far East. (And vice versa.)

Japanese data this morning showed the domestic corporate goods price index rising 1.2% in the year to April, down from 1.3% the previous month. 

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