The data from the US continues to provide evidence that economic activity is improving from a soft 1Q. The ADP labor report and initial claims (180k and 238k respectively) are expected to indicate that labor markets remain strong and suggests a solid payroll read on Friday. In addition ISM manufacturing and construction spending (54.7 and 0.5% respectively) should indicated that growth is strengthening.
In the mid and long term we remain bearish on USD, however we currently see USD positioning oversold. European / US interest rates differentials have spread excessively wide in our view indicating a probable correction should the economic data force repricing of the Fed interest rate hikes. Today's Final EU PMI is unlikely to provide real insight into the European outlook.
We are constructive on the USD against G10 currencies in the short term. GBP continues to be driven by political uncertainty rather than economic fundamentals. Despite the fact that Theresa May missed a party leaders' debate and select polling results, bookmakers still assign a low probability of Labour ousting the Conservatives from power. Should the Conservatives hold on to power we anticipate a move to 1.30 on the reduction of domestic political concerns.
By Peter Rosenstreich