The euro and equity markets have had a strong week so far, thanks mainly to a market-friendly outcome of the French first round presidential election at the weekend. The news caused the single currency to gap higher across the board and although gaps typically get filled quickly this hasn't been the case for the major euro crosses thus far, although the euro/British pound currency pair is taking another bite out of its gap as I write.
Clearly, Brexit-related uncertainty will remain in place for a while yet. After all, we still don’t know, for example, what type of a trade deal the UK will get from the EU. Thus, it can be argued that last Tuesday’s upsurge in the pound may have been a bit of an overreaction.
European Central Bank will announce its monetary policy later on the same day. ECB President Mario Draghi is expected to hold the benchmark rate and stimulus programs without any changes. Draghi said on Friday that very substantial accommodation is still necessary for the Euro zone despite the risk of deflation not being a growing concern.
The recent escalation of geopolitical risks dominating the financial market headlines has been briefly removed from investors’ radars after U.S. President Donald Trump once again took the markets by surprise. This time, President Trump made U-turns on several of his previous public views, making investors wonder whether he could be gradually abandoning some of his core election pledges. While it is not a surprise at all to hear the Trump make downbeat comments over the dollar, backing away from labelling China as a currency manipulator and seemingly supporting the need for lower U.S. interest rates is a real surprise.
Ongoing geopolitical tensions across the globe and heightened political risk in Europe have limited appetite for riskier assets this week, with global stocks now on the back foot. Asian share concluded in the red on Wednesday, as the uncertainty from world events left investors on edge.
The sterling was volatile on Tuesday, with prices oscillating between losses and gains after markets digested the UK’s steady 2.3% inflation figure for March, which was the highest level since September 2013. The ongoing currency weakness created by Brexit, coupled with rising oil prices has elevated inflation above the Bank of England’s 2% target, with speculation mounting over CPI following its positive trajectory this quarter.
A U.S. missile strike in Syria, a weaker than expected jobs report, and Fed planning to shrink its balance sheet, all did little to move markets significantly last week. U.S. stocks fluctuated between gains and losses throughout the week, Treasuries traded in a similar pattern, gold erased gains after jumping to a 5-month high, and the VIX was capped at 13.43.