Highlights from last week:
- UK general election confirmed for 8 June
- UK retail sales slump in March
- Macron and Le Pen through to French presidential run-off
The week ahead:
- ECB policy meeting (Thursday, 12.45pm)
- UK first-quarter GDP data (Friday, 9.30am)
- US first-quarter GDP data (Friday, 1.30pm)
Sterling holds gains despite retail sales drop
Sterling leapt to six-month highs above $1.28 against the US dollar and touched a four-month high over €1.20 versus the euro last week after Theresa May confirmed an early UK general election will take place on 8 June. Markets appear to be calculating that a strong lead in the polls for the Conservatives could translate into a landslide victory for Mrs May which would strengthen her position for negotiating a successful Brexit deal.
The pound generally held onto its gains through to the end of the week despite data on Friday showing UK retail sales fell by 1.8% in March, which was far worse than the 0.2% drop expected by economists. Overall sales for the first quarter posted their biggest quarterly decline since 2010, adding to the signs that consumer spending appetite is waning as higher inflation bites into households’ real incomes.
Macron and Le Pen to contest French presidential run-off
The scope for more exchange rate volatility to come is inevitably lifted by the start of a busy European election roster, which started with Sunday’s first round of the French presidential election which had looked to be a tight affair between the top four candidates. In the event, the second round run-off on 7 May will be contested by centrist independent Emmanuel Macron and far-right candidate Marine Le Pen. By early on Monday (24 April), the sterling/euro rate was trading at nearer the €1.18 level, with the euro finding some support from relief that the second round will not be a choice between the two Eurosceptic candidates Le Pen and Jean-Luc Melechon.
Sterling also firmer elsewhere
Sterling rose above NZ$1.83 for the first time since September, with the New Zealand dollar finding only temporary support against the pound after New Zealand consumer prices rose at an annual rate of 2.2% in the first quarter of 2017. This was the highest inflation rate in more than five years and prompted some speculation the Reserve Bank of New Zealand may eventually lift interest rates slightly sooner than previously thought.
Sterling’s climb above C$1.72 against the Canadian dollar was also a first since September. The Canadian dollar was dragged lower by a combination of lower oil prices and a developing dairy trade dispute between Canada and the US. The Australian dollar, which is typically another commodity-led currency, also struggled. The pound advanced to highs above A$1.70 for the first time since early January.
The week ahead
A relatively light domestic UK data calendar initially this week provides public sector net borrowing figures (Tuesday, 9.30am), although the first estimate of first-quarter Gross Domestic Product (GDP) growth later in the week (Friday, 9.30am) will come under considerable scrutiny for signs of any economic slowdown since the turn of the year.
The wider European economic calendar is headlined by the European Central Bank’s monetary policy announcement and press conference (Thursday, from 12.45pm), with markets likely to be looking for any indications that the central bank is considering scaling back monetary support in response to improving economic conditions.
The US release schedule is quite eventful this week, the highlight of which is likely to be a first estimate of first-quarter GDP growth (Friday, 1.30pm).
Other key data releases:
Australian consumer price inflation data (Wednesday, 2.30am)
Bank of Japan monetary policy announcement (Thursday, 3.00am)
Japanese consumer price inflation data (Friday, 12.30am) and unemployment data (Friday, 12.30am)
Canadian GDP (Friday, 1.30pm)