USD still gaining on safe haven flows

Today's Highlights

• USD still gaining on safe haven flows

• Surprisingly strong Japanese growth data boosts Yen

 

Current Market Overview

We saw very positive GDP growth data from Japan overnight. The markets were expecting China's slowdown and the general downbeat mood to have pulled Japan's economy into contraction in Q1 but the actual number was 2.1% growth on the year and 0.5% on the quarter. During May, the GBPJPY exchange rate has fallen from 146 to around 140 to the Pound. It would be no surprise to this this pair test the 137 level we saw back at the start of the year.  

Happy Victoria Day Canada. There is not data due for release from Maple Leaf land today but have a good one. For traders of the Canadian Dollar, Wednesday is the most interesting of the week. Retail sales data is expected to show an upturn in activity and that would certainly strengthen the loonie. 

There isn't a lot of data under any flag due today. Central bankers appear to be in charge, with speeches from members of the US Federal Reserve, the Bank of England and the Brazilian central bank making the news.

The big mover is the US Dollar, which has swept all aside due to its status as a safe place for investors to house their wealth while the battle rages over trade talks between the two economic powerhouses of the US and China. The greenback (such an old fashioned term) has pushed the Pound down to 1.2750 and the Euro to 1.1150. It is hard to see how anything other than a resolution with China will knock the Dollar off its pedestal. 

The euro is weaker against the emboldened US Dollar but has held its ground against the Pound. This is spite of poor but mixed data from the various EU states. Given the recently poor German data, the forecasts for this week's GDP, manufacturing and IFO indices seems quite optimistic, so there is room for the Euro to weaken if that data misses its marks. 

The Pound, for its part, is at the mercy of UK politics, gawd 'elp it guv. Clarity on the path of the Brexit plans is a likely as a straight answer from a politician and the options Prime Minister May is seeking to place before the House are all flawed in one way or another. The option to leave on WTO rules isn't even on the cards. That has riled many and may embolden the Nigel Farages of this world and his growing band of supporters. Whether the Tory and Labour parties are going to get battered in the upcoming EU elections is not in question. How many months/years they will spend in rehab is the question. Sterling has to contend with all of this uncertainty plus Mark Carney tomorrow and both inflation and retail sales data later in the week. That data is expected to be rather buoyant but positive UK data seems to be overlooked in favour of negative Brexit discussions. Thank you BBC. Good luck little Pound. 

The most amazing story of the last week was news that billionaire technology investor, Robert F. Smith, whilst giving a speech at the graduation ceremony at Morehouse College in Atlanta, stunned the class of 2019 by vowing to pay off all their student debt. 430 students who will have amassed debt of some $40 million will be debt free as they leave uni. I know, in the accounts of a billionaire, that is probably not a big hit but what a fantastic gift. I hope the billionaires of the UK are listening and there are more than 50 of them at the last count. That's only two British universities each. Just sayin'…