The US Dollar Index advanced in the first three days of the week but is under some pressure today. The FOMC minutes confirmed what the market had already known, which is a rate hike next month is highly unlikely.
Meanwhile outside of the UK’s strong retail sales report, most of the data today has disappointed. These include the flash PMIs in both China and the eurozone.
April retail sales in the UK jumped 1.2%, three-times more than the market expected. It completely recoups the 0.7% decline in March and more: the 1.2% gain is more than the entire first quarter. Warmer weather induced strong buying of clothes and footwear, which were up 5.2% on the month. Shoppers are also responding to discounts. The price deflator stands at -3.2% year-over-year.
The UK debt markets did not respond much to the unexpected strength of retail sales. The equity market turned higher, bucking the losses elsewhere, but it was sterling that was the big winner. Yesterday it had snapped a three-day decline that had seen it shed about 3.5 cents. Sterling rallied more than a cent on the news. Between yesterday and today, it has retraced 61.8% of its three-day drop (~$1.5670). Above there, resistance is seen near $1.5700. The intra-day technicals are stretched by the sharp advance, warning of the need for some consolidation or correction.
The eurozone composite flash PMI slipped to a three-month low of 53.4 in May from 53.9 in April. It was Germany that disappointed. Its flash manufacturing survey eased to 51.4 from 51.9 and services softened to 52.9 from 54.4. Both were weaker than expected. French manufacturing did better than expected. However, at 49.3, it remains below the boom/bust level though it is above the 48.4 print in April. The service PMI rose to 51.6 from 50.8. The consensus was for 51.9.
