The EUR Bouncing, With UK Employment, Carney and GBP in Focus

So, the war mongers and the market bears will be somewhat disappointed with how the markets have brushed aside a nuclear threat from North Korea and, perhaps worse, Trump’s affirmation that there will be no ground war with Syria.

We’re not seeing a recovery rally just yet, with anxiety still lingering over the Tillerson meeting in Moscow and the U.S and China military presence on North Korea’s borders, despite the view being that military force will be a last resort.

The economic calendar is on the lighter side through the European and U.S session, with the UK’s February average earnings and March claimant count the key stats for release early in the European session. The speculation over the BoE’s next move has continued and the pound has been on the receiving end, reflected in the Tuesday’s 0.61% gains off the back of the March inflation figures.

If there were any expectations for the annual rate of inflation to ease back, as was the case for the Eurozone, the markets would have been disappointed with the weakness in the pound continuing to drive inflation beyond the BoE’s 2% target.

Today’s employment figures will be particularly relevant when considering the fact that the BoE had revised its projections on unemployment for the worse, supporting its post Brexit rate cut, neutral monetary policy position

We’ve heard from Draghi and the EUR has been pegged back as a result, but we’ve yet to hear anything concrete from the BoE Governor, who is scheduled to speak as the employment figures roll out this morning.
It’s perhaps time for the BoE to begin providing the markets with some guidance, MPC member Forbes having been the only dissenter since the acceleration in inflation.

Economic indicators have been mixed, but titled to the downside and inflation is likely to be attributed to the weaker figures, though the Bank may argue that inflationary pressures are easing, with March’s production input price inflation figures falling back from the highs seen at the start of the year. Either way, the markets were abruptly reminded that a possible rate hike remains on the table, with only a convincing speech by the BoE governor likely to remove such speculation that has provided this week’s support to the pound, which has recovered from last Friday’s sub-$1.24 levels, looking to break back through $1.25 levels.

For the EUR, there are no material stats through the remainder of the day to provide direction, while the EUR bounces back from Friday’s lows. FOMC commentary had limited impact on the Dollar through the early part of the week, concerns over Syria and North Korea overshadowing the relatively dovish outlook on the interest rate path.

While concerns over U.S intervention may have abated, the French elections are looming large and the playing field looks to be rapidly changing in what had been a 2-horse race. The ascendancy of Melenchon has complicated matters, raising the prospects of a French EU referendum, with the prospect of a Melenchon – Le Pen 2^nd round certainly leaving the markets with little choice but to dump the EUR and French equities.

As things stand, the panic has yet to fully kick in with Melenchon having seen a similar rally in the run up to the last elections, but this time around, the landscape has changed, France has experienced more than one terrorist attack on home soil and unrest is prevalent in the suburbs of Paris, the refugee crisis adding fuelling the fire of populist parties.

The markets will have less than 2-weeks until the first round election and for the EUR to get through unscathed, one of the two centralist parties will need to make it through to the 2^nd round. As things stand, Melenchon still sits back behind Macron and Le Pen, but if the markets were hoping to through to Election Day with the polls behaving, there will be disappointment…

The Dollar weakness through the early part of the day will likely be as a result of the market sentiment towards FED policy and easing risk aversion over North Korea and Syria, with European equities kick starting the day in the black, with gold and the Yen in the red.

U.S futures are also pointing to gains at the time of the report and the risk aversion seen at the start of the week is likely to continue unwinding through the rest of the day

At the time of the report, the Dollar Spot Index sits at 100.60, down 0.11% on the day, with cable relatively flat $1.24911 ahead of today’s data and Carney speech, though the day is unlikely to end at these levels, with the EUR bouncing around, currently up 0.11% at $1.06165.

Economic data and Carney will be the driver for the pound through to the close, with the markets likely to take a closer look at the French polls, with little else for the markets to consider as risk appetite returns to the broader market.