USD

President Trump has hailed the deal reached with Mexico as a ‘triumph.’ He had announced a coercive tax on Mexico, which was less about any trade imbalance and more of a response to Central American migration to the US. Last week also saw the trade-war with China continue, and the US administration state that it would remove India and Turkey from its list of developing countries. However it appears the proposed rise in duties by 5% every month until October is now off the table as Mexico has agreed to deploy its National Guard throughout the country, while the US has pledged to expand its programme of sending asylum seekers back to Mexico. The deal between both countries ended three days of negotiations, and provides much-needed relief to a rocky relationship and market. 

Data releases to watch for this week include Core CPI and retail sales, both key to how the Fed decides rate cuts to support growth. Non-farm payroll data late last week was disappointing, and for the second time in four months the US produced far fewer new jobs than initially forecast. Such data increases concerns that the employment boom the US has seen for two years, may be shifting negatively. The slowdown in job growth reiterates speculation that the Federal Reserve could be shifting to a rate reduction as early as mid-June, when the next meeting takes place. 

EUR

The European Central Bank is reportedly concerned about the EUR/USD exchange rate in the wake of the new US-Mexico trade tariff agreement. Italy’s industrial production declined by 0.7% in April, the second consecutive monthly fall in output. It was however an improvement, albeit still a contraction. The euro failed to benefit from the data release by national statistics institute Istat.

For Europe, the Swiss National Bank’s policy decision later this week, where the SNB are predicted to hold interest rates, could be influential on global trade and FX, but otherwise today is a quiet one, with France, Germany and Switzerland all on a Bank Holiday.

CAD

Recent employment and trade data have been positive, so CAD will respond if the next set of housing starts and building permits are upbeat. The Bank of Canada is one central bank not expected to cut interest rates, unusual compared to its counterparts. Look at for the data later on today, where building permits are forecast to rise by 0.5% in April. 

For the most part, the Canadian Dollar is and still will enjoy a positive economic backdrop. Last week it hit a two-week high against USD after rising exports and falling imports shrunk Canada’s trade deficit in goods in April. 

One to watch for the Loonie is once again the US trade wars, as the suggested tariffs on Mexico, albeit for now back in the box, could impact a new North American trade deal. With Canada sending much of exports, including oil, to the US, any trade deals the US is involved in can in part affect Canada.

GBP

It’s a busy day for sterling, with the pound reacting negatively to the UK economy data release. Stats show it shrunk by 0.4% in April, and while markets had expected a disappointing number, it was worse than expected. Sterling fell against both EUR and USD. 

Leadership hopefuls vying to replace Theresa May have until 5pm GMT to garner the support of eight MPs or they will be removed from the race.  With May’s legacy being one of not breaking the Brexit deadlock, it will prove a critical matter to the candidates lining up to replace her, and of course, could impact forex markets when deciding to go for a soft or hard exit. Former Foreign Secretary Boris Johnson is the bookies favourite, with Environment Secretary Michael Gove clashing this weekend with former Work & Pensions Secretary Esther McVey over shutting down Parliament to force through a no-deal.  

The UK is busy looking outside Europe for trading partners post-Brexit and announced a new deal with South Korea today. International Trade Secretary Liam Fox signed the arrangement with Yoo Myung-hee in Seoul, and marks the first deal the UK has secured in Asia post-Brexit, and will maintain conditions of exporting cars and auto parts. 

JPY

While trade tensions between the US and China are still impacting Japan and the wider Australasia region, Japan’s economy has beat expectations with a boosted GDP. It gained 2.3% in Q1, which was predicted to be 2.1% growth. Higher capital spending was attributed as the cause for the rise, but it wasn’t all good news. The Cabinet Office who supplied the GDP data suggested there are concerning signs that consumer spending is on the decline. If the Bank of Japan is concerned over the country’s outlook, there could be the potential for easing. The yen reacted little to the news however.

Important data to watch out for is the PPI y/y release tomorrow morning, giving us a strong indicator of consumer inflation in Japan. Thursday will also see an announcement on industry activity from Japan’s Ministry of Economy, Trade and Industry, so the story has just started for the yen this week.