terling managed to hang on the gains it made last week on the back of decent economic news and signs of progress in the discussions between Labor and Conservatives on a Brexit agreement. The Japanese Yen rallied hard on thin holiday London markets, and major emerging market currencies all sold off on the generalised flight from risk.

The fresh tariff threat will dominate newsflow in what would otherwise have been an uneventful week. We think that both the New Zealand and the Australian central banks will stay on hold this week, disappointing expectations for a cut and supporting their respective currencies against the US dollar.

GBP

A relatively hawkish Bank of England, solid PMI business surveys and the news that Theresa May was ready to make concessions to Labor in order to reach a Brexit agreement all push Sterling to the top of the rankings among major currencies.It managed to retain its gains even after the latest Trump eruption hit the wires, but it faces a key test Friday when first-quarter GDP data are released. The recent streak of positive surprises makes a strong number likely, which should support the pound’s rally.

EUR

A string of positive surprises in key Eurozone data should lay to rest any concerns that it is sliding into a recession. GDP came out at 1.6% annually, the economy continues to generate jobs at a fast pace, and core inflation rebounded to 1.2%. It is increasingly clear that the dichotomy between weak survey data and stronger actual economic prints is being resolved in favour of the latter. The Euro rallied only modestly, but the fact that it is still higher than last week even after the China tariff news hit the tape is a good sign and we continue to expect the common currency to rally back towards 1.15 in the coming weeks.

USD

A busy week in the US saw a less dovish than expected Federal Reserve and a strong payrolls report with modest real pay increases. In other words, no change in the horizon, either in Federal Reserve policy or in the steady but not quite booming pace of economic growth. Ordinarily this would be good news for the dollar, yet the greenback failed to rally against most G10 currencies. It did rally against major emerging market currencies, but only after the tariff news hit the tape on Sunday night. We will keep you posted on any developments on the Chinese trade front this week.