GBP/USD has posted slight gains in the North American session. In North American trade, GBP/USD is trading slightly above the 1.29 level. On the release front, there are no British economic events. Prime Minister Theresa May will take part in a Facebook Q&A session. In the US, the Empire State Manufacturing Index disappointed with a reading of -1.0, short of the forecast of 7.2 points. On Tuesday, the UK will release CPI and other inflation indicators. Over in the US, construction numbers will be in focus, with the release of Building Permits and Housing Starts.
All eyes are on British inflation indicators, which will be released on Tuesday. CPI, the primary gauge of consumer inflation, continues to move upwards, and the markets are expecting a strong gain of 2.6% in the April report. Last week, the BoE minutes indicated that if inflation is higher than predicted, it might have to respond by raising interest rates. The BoE stated in its minutes that it expected living standards to drop, as it downgraded its forecast for average earning growth to 2%, down from 3% in February. On the inflation front, the BoE raised its projection for inflation in Q1 to 2.7%, compared to 2.4% in February. According to the central bank, these forecasts were based on a "smooth" Brexit (which is by no means guaranteed, especially with the bad blood between the EU and Prime Minister Theresa May).
US numbers ended on the week on a mixed note. US consumer spending and inflation numbers fell short of estimates. CPI came in at 0.2%, short of the estimate of 0.3%. Core CPI, which excludes the most volatile items, posted a small gain of 0.1%, shy of the estimate of 0.2%. Retail Sales came in at 0.3%, compared to the forecast of 0.5%. Retail Sales rose 0.4%, short of the estimate of 0.6%. There was better news from consumer confidence, as the strong reading of 97.7 beat the forecast of 97.0 points. These numbers underscored a troubling trend where strong consumer confidence has failed to translate into increased consumer spending.
Donald Trump’s firing of FBI director James Comey could have been viewed as yet another controversial move by the temperamental president, but the firing has set off a political firestorm in Washington. Trump has been accused of triggering a constitutional crisis and undermining the rule of law. Comey had been conducting an investigation into possible collusion between Trump and Russia during the presidential campaign, so predictably, Comey’s dismissal has raised suspicions that Trump is trying to impede the investigation by firing Comey. The crisis could heat up further, with calls in Congress to appoint an independent investigator into Trump’s connections with Russia. This latest political storm has yet to shake up the markets, but a prolonged crisis could paralyze Washington and delay Trump’s agenda of tax reform and increased fiscal spending.
