The Greenback has certainly taken all chances to become an outsider on the Forex market this week. The slump of the currency extends as less and fewer investors believe in a rate hike at the Junes meeting. The decline in consumer spending in the first quarter fits into the statistical trend observed over the past three years but does not allow one to gauge evenly the headway of the US economy. On the one hand, the delays in tax refunds and relatively warm weather in the winter months, which helped to save on utility costs naturally slowed down consumption. But on the other hand, the inflation outrunning the wage growth questions the underlying reasons for the decline.
Of course, the primary matter of concern for the FED is increasing the differential between the confidence in the business environment and the real consumption capacity of the population. The growth of consumer prices eats into the purchasing power, which can continue to lead to disappointing figures of the economic growth. In this case, the FED may take a few more meetings to ponder over the need to raise rates. The probability this week for a hike is leaving the Dollar without the main catalyst for growth.
The Pound showed a 3% intraday growth following Tuesday’s trading, as Theresa May’s announcement for an early election in June strengthened the hopes for an early resolution of the uncertainties associated with Brexit. The fact is that May’s political decisions meet the resistance from the opposition, so progress in the withdrawal from the EU has been dragged out, that keeps the smart money off the UKs growth. Since the Conservative Party is leading and outrunning the competitors by more than 20 points, early elections and victory will help to attract the current government even more support. It is also essential for May to latch to the Premier’s seat as a result of the universal suffrage.
On Wednesday, some investors kept gains of Tuesday upsurge, GBP/USD trades in red while EUR/GBP fell from 0.85 to 0.8355, trading without clear dynamics. It is important to understand that the unexpected growth of the Pound allowed breaking several levels of resistance in the GBP pairs, so continued growth may not encounter significant obstacles. The GBP/USD pair has every chance to test the level of 1.30, provided that the Dollar will continue to enjoy low popularity as an asset in the short term. However, such a sharp growth should be treated with caution on the eve of the elections in France, as investors could simply overestimate the significance of the UK event.
Among the major calls of uncertainty remain the France elections and tensions on the Korean peninsula. According to a preliminary survey conducted by Cevipof for Le Monde magazine, the leader of the race is Macron receiving approval of 23% of respondents, Le Pen – 22.5% of the vote (having lost 2.5% since early April). The left candidates, Fillon and Melenchon, share approximately by 19% of the votes. Investors fear that the second round will be held by candidates calling for a referendum for an exit from the eurozone. The uncertainty also comes from the fact that the percentage of undecided people averages at 28%, which can significantly affect the final results of the vote.
However, the activity of the bulls in “safe heavens” has declined, as the risk aversion on the eve of important events has already been priced into the market and now they move to digesting the consequences. Gold abandoned the attempts to test the level of $ 1,300 per ounce, the pair USD/JPY retreated from the level of 108 on the background of a sharp weakening of the US currency. Oil has traded in a moderate plus in the anticipation of the data release about the commercial inventories in the US.