Market Report - 05/06/2024
Election build up strengthens Sterling ; Markets await US labour data
It’s due to be a busy end to the week with two major central bank interest rate decisions, the UK election build up and a host of macro-economic data due out from the UK, US and Eurozone.
The GBP remains one of 2024's best-performing currencies, however analysts have noted that the market is mispricing Bank of England rate cuts and a close election result, which could make for a ‘soggy’ summer.
After winning the first of two leader election debates, Prime Minister Rish Sunak served as a reminder to the country that he is still in the running. Because of Labour's virtually insurmountable advantage and the anticipation of continued policies under the next administration due to the parties' similar economic platforms, the election has not affected the Pound. However, analysts warn that if the outcome is less certain, volatility may increase.
The GBP/EUR rate is gradually retreating from its 21-month highs as the midweek trading session goes on, it may be headed for a fifth straight day of declines. At the time of writing, GBP/EUR was trading at 1.1749, having opened slightly lower at 1.178. At 1.2767, the GBP/USD rate is retreating from its recent gains.
Having touched 1.28 again yesterday, resistance levels at below 1.2815 was looking likely to be breached. However, following renewed dollar strength and broad-based safe haven demand, most dollar pairs seem to be retracing as markets await ADP payroll data later today.
The U.S. job report on Friday and the European Central Bank policy meeting on Thursday are the short-term highlights for GBP, the EURO and USD. Investors will also be keeping a keen eye on polls and any further macro-economic data.
The Pound gained momentum and reached new multi-week highs versus the Euro and the Dollar, however the inflation report in the next week is likely to have an impact whilst influencing the Bank of England's interest rate decision on June 20th.
Across the pond, we have a busy week packed with data releases that could impact the US Dollar. So far this week, the US Dollar traded marginally on the upside, putting the risk-related sector under some downside pressure with EURUSD retreating from 1.09 levels. This means that EURUSD has had 3 consecutive days of downward movements alongside a continued theme of US yield declines.
Whilst the main focus will be on the Non-Farm Payrolls on Friday, investors will be keeping a close eye on this afternoon’s ADP jobs data. The ADP report is expected to print around 173k private jobs added to the US economy. If the actual number meets expectations or ends up below expectations, we could see a dovish stance from the Fed and U.S as yields ease-off further.
Meanwhile, recent hawkish statements from Fed officials have fuelled speculation that the Federal Reserve may retain its tight posture for a longer period of time than predicted.