Steady sterling

Firm Fed

As widely expected, the Federal Open Market Committee left the federal funds rate target range unchanged "at at 3/4 to 1 percent" on Wednesday evening. The other headline-grabbers yesterday were the debate between Marine Le Pen and Emmanuel Macron and Theresa May's allegation of EU interference in the UK election campaign.

None of these had much immediate impact on exchange rates but all three hinted at things to come. The prime minister's accusation that threats by European politicians and officials have been "deliberately timed to affect the… general election" suggests a souring of the Brexit negotiations. It could be a bad omen for sterling. In the Le Pen/Macron debate the more moderate M. Macron was generally agreed to have cemented his position as front-runner in Sunday's French presidential run-off. A win for him would be positive for the euro.

The FOMC's statement continued to expect that "economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate". It was enough to keep alive the expectation of another rate increase on 14 June. That gave the dollar the edge. It strengthened by two fifths of a cent against sterling, which was unchanged against the euro.

Constructive PMI

The second of the three UK purchasing managers' indices showed the construction sector to be in better shape than expected, despite tales of stickiness in the London residential property market. In Euroland first quarter growth came in at a provisional 0.5%, in line with analysts' forecasts.

At 53.1 the UK construction PMI was a point higher than expected. It is not a prime mover for sterling: indeed the pound ticked lower after the release of the data. However, it will have raised expectations for today's services PMI. It was a similar story with euro zone gross domestic product: the on-target figure did nothing for the euro.

Wednesday's loser was the Australian dollar. It was down by more than a cent and a half, undermined by softer prices for copper and iron ore and by a narrowing of Australia's trade surplus.

Votes and services

The important UK numbers today are mortgage approvals and the services sector PMI. After two better-than-expected PMIs investors will inevitably be looking for services to come in higher than the forecast 54.5. It leaves more scope for disappointment than delight but, as with manufacturing on Tuesday, the other European readings are all supposed to be better than the one from Britain.

The other data cover Euroland retail sales and the trade deficits of Canada and the States. Tomorrow brings the US employment report, including the monthly change in nonfarm payrolls. An increase of 185k is expected. 

Today's local and mayoral elections may or may not provide a reliable guide to how Britain will vote on 8 June. Either way, they will be seen by investors as a sort of super opinion poll. It would be surprising if there were to be no reaction from sterling as the result emerge.