Euro continues upward trend; markets eye US data

Tom Tong01/Apr/2011Currency Updates

GBP

The week’s economic docket reinforced a weakened outlook for the UK as the prospects for future growth deteriorate. The GfK consumer confidence survey held steady at -28 for the second month in March to mark the lowest reading since 2009.

Thursday’s Nationwide House price figures both YoY & MoM showed small increases, but an earlier report by the Bank of England showed an unexpected rise in mortgage defaults during the first-three months of the year. Thursday also saw the GBP/USD pair range trading through the day, with GBP/EUR declining during the afternoon responding to a strengthening single currency.

Friday’s key UK number is the March UK Manufacturing Purchasing Managers Index.

EUR

This week the euro has continued to maintain the upward trend from earlier this year.

Thursday’s data saw the change in German unemployment fall by more than double the expected figure, falling to the lowest level since unification.

The results of a stress test on four of The Republic of Ireland’s banks (Allied Irish, Bank of Ireland, EBS and Irish Life & Permanent) by a group of independent experts and the country’s central bank showed the Irish banking system needs an extra €24bn to weather the financial crisis. However, Ireland still has a potential €35bn available from its previously negotiated bailout package

This week’s reading for Eurozone inflation unexpectedly increased at an annual pace of 2.6% in March – the fastest since October 2008. The European Central Bank may turn increasingly hawkish going into next month as it maintains its mandate to ensure price stability. As market participants expect borrowing costs in Europe to increase by 125bp (1.25%) over the next 12-months, the rise in interest rate expectations should continue to support the Euro overriding sovereign debt fears.

Friday sees the release of the German and EU Manufacturing Purchasing Managers Indexes and the Eurostat Eurozone unemployment rate.

USD

Thursday’s US data saw rise in unemployment claims and a decline in US factory orders ahead of the highly anticipated non-farm payrolls report today which is expected to register an increase of 191k for March.

Late on Thursday a Federal Reserve member the President Federal Reserve Bank of Minneapolis Narayana Kocherlakota said higher short-term US interest rates, perhaps a rise of 75 basis points (0.75%), were “certainly possible” in late 2011.

The dollar may regain its footing during the North American trade as investors scale back their appetite for risk.

Key US numbers on a busy Friday are Non Farm Payrolls, Bureau of Labor Statistics Unemployment Rate, US Average hourly earnings and the ISM Manufacturing Purchasing Managers Index.

In other North American news Canadian GDP recorded a better than expected figure of 3.3%.

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Written by Tom Tong

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