UK PMI disappoints as retail sales improve whilst Italy lumbers towards new election

Tom Tong05/Mar/2013Currency Updates

GBP

The pound made moderate gains against the dollar and the euro yesterday after a relatively flat overnight session was disrupted by worse than expected UK Construction PMI data was printed at 46.8 (49 Exp.) indicating that the regions construction activity had dropped to a more than three year low. Also weighing woefully on sterling was the suggestion that the BoE’s open ended stimulus plan was coming up very short of its objective from the Funds for Lending Scheme report published yesterday. One positive was an upside surprise in retail sales figures which grew at the fastest pace in the last year.

Looking ahead, it is expected that further news of stimulus is likely to emerge from the MPC’s monthly meeting this Thursday.

USD

The markets were able to react to the implementation of ‘the sequester’ yesterday and did so more cautiously than the flow of confidence expected by the US Government’s top policy makers. The effects of the sequester’s implementation is exactly the opposite than the previous resolution of the US fiscal cliff which saw the Dow Jones rally to five year highs and sparked a strengthening trend for the dollar, and as such we saw the green back print modest losses against the board. It is worth noting that ‘the sequester’ carries far less weight than the fiscal cliff discussion as this policy can be reversed at any time by US congress.

EUR

The single currency fell to within 0.5% of the three month Low against the dollar yesterday as Mario Draghi and his board prepared for their monthly meeting this Thursday. As economists estimated that the Euro GDP fell 0.6% in the fourth quarter speculation mills began to turn and forecasts of a further ECB rate cut appeared on the horizon, Though this is thought unlikely to emerge this week. Unemployment figures Spain 59.4k.

Elsewhere in the troubled region, Italy edged closer to a new election after its county failed to reach a conclusive vote amid rumours of a further ratings downgrade emerged late last night. Bond yields on 10 year Italian paper drifted a further 10 basis points yesterday to records spread against the bund. This reflects continued investor doubt over the beleaguered sovereign.

JPY

The Yen emerged yesterday as one of the day’s main victors its deputy governor failed to assure markets that it would be the benefactor of any further stimulus.

AUD

The RBA decided to leave its rates on hold at a healthy 3% in line with predictions last night, upbeat tones from the central bank over the Nation’s capital Expenditure, supported Australia economic outlook and gained further support for the AUD.

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Written by Tom Tong

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