The dollar fell on Friday after the publication of mixed US employment figures. While the American economy did create 18,000 more jobs than expected, excluding the agricultural sector, the unemployment rate has risen from 3.8 to 4%. More importantly, growth in hourly wages has slowed from 0.3% to 0.2%. In light of the situation, the euro gained some ground and parity flirted with the $1.1800 mark. The day before, the minutes of the last FOMC meeting had revealed a Fed broadly optimistic on the strength of the US economy. The economy as evolved in line with the expectations of the institution, and the central bank is convinced of its reasons for continuing the rate hike cycle. The FOMC, however, has expressed concern that international trade tensions may affect the economy, which currently appears strong. Yesterday the euro fell, in turn, following the publication in Germany of the ZEW index. This index, which reflects the economic outlook, was expected at 78 points, but came out much lower at 72.4, compared to 80.6 the previous month.

In the UK, Theresa May has published a roadmap that shows that her government is moving towards a soft Brexit. This government agreement, which would lead to a free trade agreement with the European Union, greatly displeased the two government members who support a hard Brexit. In quick succession, Brexit Minister David Davis and Foreign Minister Boris Johnson resigned. As a reminder, the separation of the United Kingdom from the European Union will be effective on 29 March 2019 and the time remaining to reach an agreement between the two parties is, therefore, quite limited. After an initial downturn, the pound rebounded yesterday in the foreign exchange market as fears of a fall of the government seemed to dissipate. Interestingly, in April a polling institute estimated at 20% the chances of seeing Jeremy Corbin, the leader of the Labour opposition, come to power in the next 12 months.

The Turkish lira fell from 4.5150 to 4.75 to the dollar earlier this week and the 10-year government bond reached 17.78% – a record high. The appointment of Berat Albayrak, President Erdogan’s son-in-law, as Finance Minister in his new cabinet has been poorly received by the markets. These had already reacted negatively to a new presidential decree granting the president the right to appoint deputies to the Governor of the Central Bank without the latter’s consent. These two decisions come in a difficult economic context of high inflation and a sharp decline in the currency.

On the agenda, we have Donald Trump’s visit of Europe, as he attends the NATO summit in Brussels today, where he will undoubtedly put pressure on his North Atlantic Treaty partners to increase their military expenses. Then he will travel to London to meet Theresa May and then to Helsinki for a much anticipated summit with Vladimir Putin. In terms of economic data, we will have US inflation figures, with the PPI today and the CPI tomorrow. As for central bank meetings, today we will have that of the Central Bank of Poland, which according to the consensus will keep its rates unchanged at 1.50%, and later in the day that of the Central Bank of Canada. In Canada, however, opinions are more divided. The Central Bank should nevertheless raise its rates by a quarter point to 1.50% while inflation is above the target of 2%. But at the same time, the institution does not want its currency to strengthen too much as the economy faces many risks including the renegotiation of the NAFTA agreement and the imposition of taxes on Canadian imports by the Trump administration. Finally, Mario Draghi and Mark Carney will speak publicly today.

Levels

EUR/USD  1.1735 DOW JONES 24’919.66
USD/CHF  0.9915 SMI 8’768.91
EUR/CHF  1.1635 BRUT 73.73
USD/RUB  61.95
XAU/USD  1’252.00