Sterling overall has been held in relatively tight ranges, especially with UK markets closed on Friday and Monday. Overall yield spreads remained a key element in global currency markets with the Euro remaining under pressure. The latest CFTC data recorded a further increase in short, non-commercial Sterling positions to over 53,000 contracts in the latest week from below 42,000 previously. This was the largest short position since late 2021 and the second-highest short position since November 2019. The overall positioning will maintain the potential for a Sterling rebound if there is a shift in sentiment. Markets will continue to monitor political developments with Prime Minister Johnson under further political pressure and due to make a statement to the House of Commons on Tuesday.
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The ECB made no changes to monetary policy at the April meeting with the main refi rate held at 0.0% which was in line with consensus forecasts. As far as the economy is concerned, President Lagarde stated that downside risks to the economy have increased substantially while inflation risks were higher. On a longer-term view, however, the bank expects inflation will gradually move back to target and possibly below. Lagarde stated that the bank was sticking to its planned sequence and complete asset purchases first which is likely to be during the third quarter. She added that it will start raising rates some time afterwards which could be a week or several months. In this context, the June meeting will be pivotal. If this sequencing remains in place, the bank could raise rates as early as July or delay this until much later in the year. Markets had priced in a more hawkish stance and there was a downgrading of market expectations surrounding ECB rate hikes which sapped support for the Euro.
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The New York Empire manufacturing survey strengthened sharply to 24.6 for April from -11.8 previously and well above consensus forecasts of 1.0. There was a slight easing in the rate of increase of prices received, but the prices paid index strengthened to a fresh record high. There was, however, a sharp weakening in confidence surrounding the outlook with expectations surrounding business conditions sliding to the lowest level since the second quarter of 2020. US Treasuries came under heavy selling pressure with further selling ahead of Monday’s New York open with the 10-year yield at the highest level since December 2018.
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