Sterling struggles to hold ground as investors await a spate of data releases later in the week

Tom Tong12/Mar/2013Currency Updates

GBP

The pound extended its decline against the dollar to a 32 month low falling further below 1.50 to a level not seen since June 2010. Many economists expect to see even further depreciation and see GBP/USD moving into a lower trading range with risks heavily skewed to the downside.

Current weak UK trade and industrial data as well as the downgrading by Moody’s are continuing to add to concerns that the UK is in or very soon to be in a triple dip recession. So far this year GBP has lost 8.5% and 7% against the dollar and Euro respectively.

However, sterling did manage to pick up some pace yesterday afternoon and reclaim some of its lost ground breaking back through the a key resistance level. One small glimmer of hope for the UK at the moment is the bull run in the FTSE 100 up 9.9% so far this year. We are already seeing levels that many economists and analyst thought would only be hit by year end.

Economic data released today is all tier two, most notable however is the Industrial and manufacturing production, (YoY) (Jan) general consensus is that both figures will be slightly better or flat from previous therefore very unlikely to do anything to release the downward pressure on Sterling.

EUR

Yesterday, Germany came out with data showing that exports had jumped much more than expected for the month of January. A report released highlighted an increase of 1.4% much larger than the 0.3% expected. Imports also had an impressive rebound from the previous month with a 3.3% rise, again much larger than the 1% foretasted. This news was well received as the German economy attempts to re-establish itself after shrinking in the fourth quarter of last year.

There was not such great news from France however as industrial production took an unexpected tumble down 1.2% for January, 1% more than forecasted. Manufacturing output for January also slid showing a 1.4% decrease. According to a Bloomberg consensus France will follow its 0.2% contraction in Q4 of 2012 with a 0.1% decline in Q1 of 2013. These poor figures came after the weekend when the French Budget Minister Jérôme Cahuzac announced that no further austerity policies would be carried out this year because new tax hikes or spending cuts would have a recessionary effect in the short term.

With the little data that was released yesterday seemingly contradicting itself on the overall state of the Eurozone it explains why there was little to no volatility and why the Euro stayed range bound against most of its counter parties yesterday. This quiet spell could be relatively short lived with German CPI figures out today as well as the 17 nations CPI (YoY) (FEB) figures out at the end of the week.

USD

Data was very thin on the ground From the US yesterday. Last week’s data from the Labour department showed that the jobless rate fell to a four year low at 7.7 % continuing to play on the markets. As such the dollar held on to its gains against the yen and Euro, trading near a three and a half year high against the Yen and three month peak against the Euro. Last week Jobless figures and the reports that are eagerly awaited by investors later this week i.e. the retail sales (FEB) and CPI figures (FEB) on the 13th and 15th respectively; both of which expected to see a 0.5% increase are sure to add to further strength for the green back as the week goes on. Economists believe that the spending cuts known as sequestration have done little to deter households and individuals spending.

Further dollar strength this week will lead to Ben Bernanke and the Fed beginning to ease monetary policies and its bond purchasing scheme even faster than expected economists predict. This will make them the first central bank of their counter parties to start removing its self from its quantitative easing scheme showing how much confidence has returned to the US economy. There is no tier three or tier two data released from the US today, as previously mentioned all eyes will be on the 13th and 15th March for the retail sales and CPI figures.

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Written by Tom Tong

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