Pound continues to strengthen despite election uncertainty
28/Apr/2015 • Currency Updates•
Sterling continued its surge against the Dollar, soaring to its strongest position in seven weeks after appreciating by 0.7%.
Firms in the manufacturing sector were less upbeat this quarter than they were at the start of the year according to the Confederation of British Industry. In its quarterly report the CBI survey suggested that weaknesses in export orders was holding back factory output with just over a fifth of firms saying they had experienced an increase in production in the past three months, compared to 17% who had reduced output. This marked the lowest gap between the two figures in over two years. On the election front, the Conservatives edged ahead in the latest poll of polls by one percentage point. However, latest odds suggest a minority Labour government is now the most likely option.
The election remains in the spotlight this week, with televised Q&A’s likely to be a focal point. Tomorrow we’ll see the much anticipated release of Q1 growth figures in the UK. The economy looks on course for growth of around 0.5% quarter on quarter and 2.6% on an annualised basis.
The Euro was buoyed on news of a reshuffle in Greece, finishing the day’s trading 0.7% higher on Greenback.
Greece attempted to breathe new life into stalling talks with its Eurozone creditors on Monday morning. Alexis Tsipras’ Government reshuffled its political negotiation team amid criticism last week from European finance ministers. They suggested negotiations were moving far too slowly as the new Greek Government had promised in February to put in place measures in exchange for the four month bailout extension. However, it still remains unclear whether this new team will improve efforts to reach a deal for Greece, which inches closer to default each week. Meanwhile, creditors ruled out another “big” bail-out programme for the country of the magnitude agreed in 2010 and 2012.
On a quiet day of economic data announcements, Destatis released its import price index for Germany on Monday morning, which remained negative despite increasing month on month. On an annualised basis, prices for goods imported by Germany declined by 1.4% in March, although were 1% higher from a month previous.
This week will be another light one in the Eurozone in terms of economic data. Greece should continue to steal most of the attention as negotiations with its creditors continue.
The Dollar ended the day 0.65% lower against its major peers, with the US Dollar index touching its weakest level in three weeks.
Service sector growth eased in April according to the latest data from Markit released yesterday afternoon, with the flash reading declining from its seven month high of 59.2 to 57.8. The composite index, which combines manufacturing and services growth, also declined to 57.4 but, as it remains over 50, is still an indication of growth. Markit Chief Economist Chris Williamson suggested that GDP growth in the US could accelerate back towards 3%, having suffered from a very anaemic first quarter pace of an estimated 1%. Elsewhere, the Dallas Fed manufacturing survey remained negative for the fourth consecutive month, despite picking up marginally to -16.0 from -17.4.
Consumer confidence data out in the US today should be the biggest market mover. However, focus among traders will shift to Wednesday and the crucial twin releases of growth figures and the Federal Reserve’s interest rate decision and statement.
Rest of the world
The Russian Ruble was the worst performing global currency on Monday, weakening amid broad expectations that the central bank will cut rates later in the week. In contrast, the Brazilian Real was the largest gainer, climbing for a fifth straight day on speculation the Central Bank of Brazil will raise borrowing costs by another half percent.