Pound:
The pound had a better day yesterday in the currency markets on the back of much better than expected claimant count data, coming in at –32.3k against a forecast of 8.2k, the biggest fall in numbers claiming benefits since 1997. The pound was also aided by the Bank of England minutes which showed some policymakers (MPC members) were concerned about inflation, helping to ease concerns the BoE may opt to turn on further QE. The minutes also referred to the possibility that further depreciation in the pound could put additional upward pressure on inflation over the coming months. This has been the first negative reference by the central bank surrounding sterling weakness, which has previously been welcomed because of it boosting activity.
The UK will come back under the spotlight this morning with the release of public sector borrowing data at 9.30am and forecast at whopping 14.6B. This release is likely to create a degree of volatility for the pound and limit any further gains ahead of next weeks budget. “With the market sitting so short of sterling, we’ve had a big move in the other direction after the employment data, but I don’t think we’re out of the woods yet as far as the economy is concerned,” said Michael Hewson, analyst at CMC Markets.
US Dollar:
Trading within ranges is the theme for the week so far, with no macroeconomic news coming out that is of shocking stature we are seeing Dollar/Sterling and Dollar/Euro moving sideways. Yesterday saw a rally from Sterling after some good news on the labour market front, however this morning sees Sterling down 0.36% at $1.526 after reaching a high of 1.5368 just before the closing bell yesterday. After a strong start from the Euro at the beginning of the week, rallying to $1.3783, the Euro has fallen against the Dollar for the second day as investor patience is starting to wane as to whether or not the Euro will survive, as such the dollar is looking more favourable at the moment.
This morning sees an above average amount of macroeconomic data from the US, starting things off is the Core CPI which measures changes in the price of goods and services purchased by consumers, excluding food and energy. To briefly summarise, this data is significant because price increases are linked to overall inflation, upon an increase in inflation the central bank will increase interest rates in order to keep in line with their inflation containment mandate.
Following on from this we have unemployment claims at 12:30GMT followed by Philadelphia Fed Manufacturing Index at 14:00GMT. Plenty of potential to move the markets so be aware traders!
Euro:
Will they won’t they is the current sentiment surrounding the Euro. The latest issue to come to light regards where the money will come from should Greece need a bailout. Several E.U countries are not too keen on providing funds, Germany being one of those countries.
Comments by Angela Merkel put the brakes on any Euro recovery yesterday whilst threats from Greece to go to the IMF have sent the Euro lower still, down 0.11% against Sterling at €1.1170 this morning and down over half a percent at $1.3667. “All this keeps the pressure and uncertainty on the euro in focus,” said Justin Smirk, chief economist at St. George Bank Ltd. in Sydney. “Euro is not exactly a shining light for the U.S. dollar to weaken against. We see a stronger dollar and weaker euro over the next few months.” The uncertainty and ambiguity over plans for Greece have reached a point where risk aversion has forced many to abandon hopes for a Euro recovery, hence we are seeing the Dollar and Yen appreciate as the bias is on selling the Euro. No doubt many hedge funds are aware of this and large numbers of Euro futures contracts have been sold in anticipation of further Euro decline. Nothing of great importance on the data front, so expect Euro movements to be driven by other economic indicators today.
Spain’s Debt Too Big to Bail Out! 4 x Greece, Sky High Unemployment 19,5% Highest in EU!
Quote of the Day
“He who would have fruit must climb the tree.” – Thomas Fuller
