Euro improves on French election polls

Today's Highlights

• Euro improves on French election polls

• Sterling slips on profit taking

• Australian inflation above 2% for first time in 30 months

Current Market Overview

Australian inflation rose above 2% in Quarter One of 2017. That’s its first foray into this territory for two and a half years. At 2.1%, the figure was much higher than expectations, but, whilst the Aussie Dollar did gain a little on the news, no one is expecting any kind of interest rate hike from the Reserve Bank of Australia (RBA) in the near future, so that move was muted. The RBA may sit on their hands for another year unless global demand for Aussie exports starts to feed into the domestic economy in a broader manner.

The US Dollar steadied yesterday as new home sales data improved again and traders prepared themselves for Donald Trump’s tax announcements. The hype suggests we will see massive cuts in corporate and high earner taxes; just the sort of thing we ought to expect from the ‘man of the people’ billionaire. How Mr Trump will go about back-filling the decline in tax take with either cuts or other taxes is the main concern, but hopefully all will be revealed later today. 

The Euro – USD exchange rate is higher as the Euro continues to gain on polls suggesting the pro-EU Macron will take the Presidential race in France ahead of the anti-EU and anti-Euro Le Pen. There are also rumours that the European Central Bank (ECB) likes the result in France and may be ready to reduce existing stimulus measures in June after the second round in France. If that proves to be true, the Euro would get another fillip. However, there is always the outside chance of another Italian election and we are starting to see nervousness ahead of the German elections in September, so there is only a dim bulb at the end of the tunnel for the Euro at this stage.

The Sterling – Euro rate slipped overnight to below 1.17. After a stellar post-election announcement rally in the value of the Pound, a correction was inevitable. That €1.20 level is proving a tough nut to crack and Sterling will have to have some momentum behind it to break through. A weaker Pound ahead of a UK election is more normal that the rally we saw, so don’t be surprised if we see a little more Euro weakness in the next six weeks or so. There is a distinct lack of meaningful data today, but the Chancellor of the Exchequer is testifying to the Treasury Select Committee about his Budget, so that may yield some election pledge hints.

This afternoon brings Canadian retail sales data and the forecasts are for almost no growth at all. That comes after last month’s 2.2% growth, so it could be very disappointing. The Canadian Dollar has weakened, along with its US counterpart, but the GBP – CAD exchange rate has failed to break above 1.75, a level it failed at in July and September 2016. As with other GBP related exchange rates, Sterling needs a hefty shunt higher to get above these psychological barriers.

And, at a G20 women’s summit in Berlin, Donald Trump was described as a "tremendous champion of supporting families and enabling them to thrive". The quote comes from his daughter, Ivanka, as she shared a stage with Angela Merkel and Christine Lagarde. She was booed and had one Twitter user explaining how nepotism and feminism are not the same thing. Ivanka also said her father “believed in women's potential”. I think we all agree that he made that clear in certain leaked video footage.