Quiet day yesterday, ahead of swathe of eurozone economic figures

Tom Tong23/Apr/2013Currency Updates

GBP

Following news on Friday that Fitch had become the second ratings agency to downgrade the UK, yesterday was quiet with little activity. The pound rose against the euro following three weeks of losses, before a government report released this week by economists said that the UK will avoid falling into a triple-dip recession last quarter. Sterling advanced versus all but one of its major counterparts, as someone familiar with the plan said Osborne will unveil the second phase of a strategy to boost loans for small consumer and companies. Gilts gained even after the ratings cut last week. We await the report on GDP on Thursday.

The main news surrounded Scotland and that of its independence. Many believe an independent Scotland would have its fiscal policies severely restricted if it attempts to keep using the pound after leaving the UK. The treasury has also warned an independent Scotland could have serious implications for sterling, leaving the pound vulnerable to speculators.

In terms of data, it a very quiet day for the UK with nothing of any merit.

EUR

A dull day for EUR with little data released allowing the euro to hold on to the serious gains against its counterparts from last week’s lenient G20 meeting. Last Friday the ECB governing council member Weidmann commented that the ECB would cut rates if data worsened. This may be realised today when the manufacturing and services PMI from Spain, Italy and France as well as Spain’s employment numbers are released. ECB members Asmussen and Knot have also both expressed their concerns about the recent weakness in the economy and have mentioned the prospect of a rate cut.

Boiling point was reached in Italy over the uncertain government as Italian President Giorgio Napolitano threatened to resign unless politicians form a workable government. This adds more trouble as originally markets jumped on his reappointment, with Italy’s 10 year borrowing costs falling 0.17% to 4.06%. With the threat of Napolitano resigning, the markets may react negatively sending the euro down if joined with negative PMI data.

Yesterday we had the release of eurozone consumer confidence figures. This measures consumer sentiment in the eurozone nations. The figure is the result of eurozone consumer surveys, personal finance, the job market, the likelihood of saving and expectations on the economy. The figure came in at -22.3; an improvement from the -24 expected. Although the figure came in better than expected, it has remained well below the long term average. Data on release today is medium tier PMI data out of France and Germany. If figures expose more weakness they could give policymakers more reasons to go for a rate cut.

USD

The dollar inched closer to the psychological benchmark rate of USD/JPY 100 yesterday. This advance was halted by a drop in sales of existing homes by 0.6% last month to an annual rate of 4.92 million, adjusted on a seasonal basis. On the back of Japanese officials stating that the G20 leading economies had accepted the country’s stimulus programme and accepting that it was aimed at conquering years of deflation rather than altering the exchange rate, the yen continued to weaken.

China’s slowing growth could also see investors rally to the dollar and other safe haven currencies over the coming months with manufacturing activity slowing in April. The preliminary reading of HSBC’s PMI fell to 50.5 from 51.6 in March, which has been blamed on a decline in export orders. Last year, China’s economy grew at its slowest pace in 13 years and GDP for the first three months of this year of 7.7% was below expectations.

Today we see several tier two data releases including Markit Maunfacturing PMI, Housing Price Index, and New Home sales which will give the market further indication as to whether the US economy recovery is starting to falter or the resent negative data was just a blip.

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Written by Tom Tong

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