Sterling gains capped on fears of second recession as the Europeans pave the way for Greeces exit from the Euro
03/Nov/2011 • Currency Updates•
At the beginning of the week we saw talk of the UK being the first country to fall back into recession this argument came back to the forefront yesterday evening as the National Institute of Economic and Social Research suggested that there is a 50% chance the UK will fall indeed fall back.
Yesterday at one point it seemed GBP was set for a mini rally against its major counterparts after construction PMI showed a positive reading of 53.9 for October. The markets had anticipated a similar reading to September’s figure of 50.1, however this rally eventually fizzled out.
Today, we have UK services PMI out at 9:30am GMT, markets expect this figure to come down from 52.9 to 51.9. In the past we have seen big moves after the release of this report, in the event this comes in positive we could see a more sustainable rally for GBP. Then again investors may look to limit their risk and this could have a negative impact on GBP currency pairs, therefore even if the report comes in positive GBP may still fall off.
Despite all the doom and gloom in the Euro zone, the euro unexpectedly posted gains against the USD and took back some of its losses against GBP. With Germany posting weaker than expected unemployment figures the markets feared the worst.
It seems unlikely that the Euro will sustain its gains as France and Germany both issued Greece with a stark warning yesterday, if they do not agree to the EU’s proposals than they will not receive the next set of bail out funds which will ultimately lead to Greece crashing out of the Euro.
Today we see the new ECB Chairman Mario Draghi step into the limelight with the ECB rate decision and press conference scheduled for 12:45 GMT. A cut in interest rates could see the Euro being sold off. In the event interest rates are kept on hold the Euro should still have a choppy day.
USD enjoyed a great start to the week but allowed some high yielding currencies to push ahead yesterday.
ADP job figures came at 110,000, slightly higher than the expected 102,000 figure. The positive reading market the 10th month in arrow that ADP has showed an uptake in job growth. In normal circumstances this would be a great indication that the job market is heading in the right direction. However, in the months gone by the ADP report has done little to give us any insight into the NFP report. Therefore ADP figures have had little impact on the market lately.
Yesterday also saw the FOMC meeting, as usual we saw mixed results. Ben Bernanke referred to improving economic data in 3Q but also downgraded growth forecasts. The economy is now expected to grow 1.6 to 1.7% in 2011 as opposed to 2.7 to 2.9% while for 2012 growth is now expected at 2.5 to 2.9% and not 3.3 to 3.7%.
Today, we see a whole host of data releases starting with weekly jobless claims and non farm productivity figures at 12:30pm GMT. Jobless claims are expected to come in marginally over the key 400,000 mark at 401,000. Nonfarm productivity is expected to increase by 2.6% last quarter, which would be a solid uptake from last months 0.7% decline.
Moving on, at 2pm GMT we have ISM non manufacturing PMI. The index is forecasted to show a reading of 53.7, which would show an improvement on last months 53.0.
In the event all these figures come in better than expected then we could see some risk return to the market but with the ongoing situation in Europe risk appetite could be limited.