USD: Solid US retail sales but eurozone PMIs will drive price action
On the US data front, our economists are looking for a rebound in March retail sales due to strong auto sales and rising real incomes. Higher gasoline prices should also contribute to a rebound in the March numbers. Solid US retail sales should give some support to the dollar against G10 low yielders, where the growth outlook remains questionable. However, as we write below, the key data points for the day are eurozone PMIs. Any meaningful upside surprise is likely to positively spill over into risk sentiment, leading to higher EUR/USD and likely US dollar weakness both against higher beta G10 FX as well as emerging market currencies.
EUR: Better eurozone PMIs to lift the euro
Our economists see the current market expectations for eurozone April PMIs as somewhat cautious and look for a modest upside surprise. Manufacturing PMIs should rebound above 48 (yet still remain below the 50 level). We also don’t expect the Services PMI to decline (as the market does). This should be supportive for the euro, lead to higher EUR/USD and in turn lift the European FX segment vs the dollar today.
GBP: UK retail sales are set to slip back
Despite some better news on real wage growth recently, UK retail sales are set to slip back in March, with consumers taking a more cautious approach amid the Brexit uncertainty. A temporary reduction in uncertainty may unlock some spending in the near term, particularly given the prospects of a warm Easter. But overall we expect UK growth to remain capped by more muted investments. This means that GBP price action should remain muted.
SEK: Limited reasons to be cheerful
We see EUR/SEK downside as being bound by the 10.40 level and continue to look for more weakness in the Swedish krona in coming months as uninspiring data and a cautious Riksbank stance (we see low odds of a Riksbank hike in 2H19) weigh on the currency. Relative to its higher beta G10 FX peers, SEK offers poor value given the negative yield yet vulnerability to swings in risk appetite, in our view. We also note a meaningful deterioration in the Swedish trade balance over recent years. Today’s March unemployment rate should have a limited impact on SEK.