GOOD MORNING FROM EURO FX Improving consumer confidence and credit expansion keeps pound buoyant.


EURO = 0.8600

STG = 1.1175

Sterling was on mixed form on Thursday as strong data from the Eurozone and US failed to suppress it against EUR and USD, but economic weakness and risk worries elsewhere allowed it to clock up gains against other majors. Sterling is almost unmoved this morning, with GBP/EUR holding steady at €1.1368, GBP/CAD down slightly at C$1.7189, while GBP/AUD and GBP/NZD are both stable at AU$1.7598 and NZ$1.8983 respectively. GBP/USD is also as flat as a millpond at $1.3281. What’s been happening? Eurozone risk sentiment faded yesterday, with traders shrugging off the Italian political crisis as Italy’s president gave more time for parties to form a coalition. Markets reacted with relief to this news, but the relief could be short-lived if a motion of no confidence in Spanish Prime Minister Mariano Rajoy is passed later today. The euro also found itself suppressed by an unexpected increase in unemployment across the bloc, as well as by reports of the imminent introduction of US President Donald Trump’s metals tariffs, with the one-month deadline being up at midnight last night. Nevertheless, stronger-than-forecast consumer prices across the Eurozone suggested to traders that economic activity was on the up, although the majority of the price gains could be ascribed to higher energy costs.

Despite a general lull in geopolitical risk sentiment, Sterling was up against the euro on news that consumer confidence was improving. The Gfk consumer confidence index for May printed a rise of two points from -9 in April to -7, which beat market expectations of -8. This was better than expected, but it was still the 29th consecutive month of negative readings. There was positive economic data coming out of the US yesterday, with personal consumption, spending and income all either coming in on or above target. Nevertheless, Sterling was able to rise against USD due to a marked rise in UK consumer credit. Borrowing was up to £1.83bn in April, a substantial increase form the £0.425bn seen in March and an indication of rising confidence from Britain’s consumers. In other news, the pound rose sharply against the Canadian dollar after Canadian GDP stats came in lower than expected and worries over Trump’s steel tariffs rattled CAD investors. Annualised Q1 GDP in Canada came in at 1.3%, which was far below expectations of 1.8% and a step down from the last reading of 1.7%. The pound didn’t do so well against the New Zealand dollar, falling below a key technical level on risk sentiment. Against the Australian dollar the pound was mostly flat due to a lack of ecostats.

What’s coming up? Looking ahead, the pound is likely to be influenced later today by the latest Markit manufacturing PMI figures, due out imminently. Although manufacturing is a minor player in the UK economy, the figures could still give an indication of economic activity for the month of May. The USD dollar could rise if non-farm payroll figures impress later today. Currently the expectation is for there to be a rise to 188k from 164k, but with most US data coming in above expectations of late there could be a surprise here. Finally, German manufacturing PMIs are also due out this morning, with any solid result liable to give EUR a boost.

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