Currency markets have shown little reaction to the conclusion of the historic summit between US President Trump and North Korean leader Kim Jong un. The two leaders signed an agreement which commits North Korea to work towards denuclearisation and promises “new… relations” between Washington and Pyongyang. But it makes no mention of US demands for “complete, verifiable and irreversible denuclearisation” and markets seemingly taking a wait-and-see approach, particularly with Federal Reserve and ECB meetings this week as well as key UK and US macro data releases.
Sterling has recovered about half of the losses it suffered in the wake of weak industrial output and trade data for April out yesterday. GBP/USD is back around 1.34 following the release of data showing that the UK labour market continued to tighten in April with a record-high level of employment. However, real wages continue to stagnate and the market is still very undecided as to whether the Bank of England will hike its policy rate in August.
Meanwhile EUR/USD continues to hover around 1.18, seemingly unaffected by further evidence of deteriorating German confidence. The ZEW Economic Sentiment index weakened further to -16.1 in June from -8.2 in May, the lowest reading since September 2012 and well below the long-term average of 23.3. The 350 or so participants, who are surveyed about their 6-month expectations, are seemingly showing growing concerns about Europe’s trade dispute with the United States and over the new Italian government pursuing a potentially looser fiscal policy. However, FX markets are seemingly focussing on the ECB policy meeting on Thursday, with the consensus forecast that it will announce an end to its quantitative easing program by September or end-year at the latest.
