Sterling reaches seven-week high against dollar, ahead of US macro figures today

Tom Tong12/Apr/2013Currency Updates

GBP

Yesterday, sterling traded sideways against the euro, but it extended gains in hitting a fresh seven-week high against the dollar. A short-term bullish trend is forming, encouraged by positive data earlier this week and speculation US retail sales figures will disappoint today.

Analysts attributed the move to solid industrial output data on Tuesday and the Bank of Japan’s massive stimulus steps last week, which has driven the yen lower and is boosting demand for riskier assets like the pound. The FTSE 100 Index climbed for the fourth day in a row and is on course for the biggest weekly gain in three months with Gilt yields falling to a seven-month low.

Better UK economic data has certainly helped to consolidate sterling around the current level and is diminishing the chances of a triple-dip recession in the UK, contrary to bets of analysts compiled in Bloomberg that the British currency was unlikely to see any significant gains until next week’s release of Bank of England (BoE) minutes, which will determine on the prospects of further quantitative easing.

EUR

The euro was stronger yesterday, rising for a sixth day in a row to its strongest level since the end of February versus its largest trading partner currency, the US dollar, as Italian yields lowered and Spanish 10-year bond yield hit its lowest level since November 2010.

Meanwhile, German annual inflation was confirmed at a two year low of 1.4% in March. The release was unchanged from a previous estimate and therefore had little effect on euro trading. Eurostoxx traded slightly higher increasing 0.48%.

However, figures showed that the Greek Unemployment Rate climbed to 27.2% in January from 25.7% in December, further diminishing the likelihood that the Greek economy will recover later in the year or early-2014, as many eurozone leaders have suggested. Regardless, EUR/JPY climbed to its highest level since January 2010, pushed by BoJ stimulus.

Today, the finance ministers from the European Union, president of the ECB and the Eurogroup President will analyse the financially troubled situation at the Eurogroup Meeting, while the Industrial Production (YoY) is expected to drop -2.5% from its previous -1.3%.

USD

The U.S. dollar Index traded yesterday lower against all of the major currencies in the morning, but a better than expected jobless claims report helped the greenback recover part of its earlier losses.

Jobless claims dropped by 42,000 last week to 346,000 unexpectedly since the dismal last NFP figure, from its previous two week ago which was upwardly revised to 388,000.

Today there is a swathe of macroeconomic data coming out of the US; Producer Price Index (MoM) of March (expected to drop to -0.2% from 0.7% previously), as well as Retail Sales (MoM) (expected to be 0.0% from 1.1% of the month prior).

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Written by Tom Tong

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