Risk sentiment returns to markets ahead of key central bank meetings

Tom Tong30/Apr/2013Currency Updates

GBP

The pound traded a fairly tight range against the dollar and euro in the week’s opening training session as market focus switched to the governmental formation in Italy and the upcoming jobs numbers in the US towards the end of the week. Sterling edged marginally higher to touch a 2-month high against the greenback but lost half a cent in Asian trading, following a similar trend against the single currency. The market seemed to ignore a data release from Gfk NOP ltd that suggested consumer confidence in the UK dropped last month as consumers remained worried about the effect of above target inflation on earnings.

The UK government took steps to return Lloyds bank to the private sector and also list the post office as a wave of privatisation looked to boost government coffers. However, London based Shazam has chosen to list on US index rather than remain loyal to its UK roots in a snub to Cameron’s plans to create a UK based tech industry.

USD

An abundance of data releases from the US on Monday. Yesterday US inflation figures were below what the markets had anticipated falling .1% below expectations month-on-month. Personal consumption expenditures remained flat at -0.1%, personal income lower than expected at .2% and personal spending up .2% from consensus. Pending home sales in March were the biggest surprise of yesterday’s session shooting up to 7.0% almost up a whole percent from expectations. This continues to support our view of the US housing market recovery.

Markets will focus on two data releases this afternoon, the key and focal point will be Consumer Confidence (April) which is expected to increase by 11 points to 60.8, up from 59.7. The US economy grew at an annual rate of 2.5% in the first three months of the year, helped by the strongest consumer spending in two years – which accounts for more than 2/3 of the US Economy. We will also see Chicago PMI index data release which will indicate business trends, also interrelated with the ISM manufacturing index. Markets expect this to increase by the smallest of margins from 52.4 to 52.5.

EUR

Europe could be coming to terms with the fact that it cannot ‘always’ rely on Germany as a protector against shocks in the world markets. Deutsche Bank has announced that it will be strengthening its reserves, through issuing $3.65 billion of stock. This is to act as funding for a cushion against the demand side shocks that are currently rife in the world economy. Alongside this news, Italian Bond yields have dropped to a 2½ year low following the results of the election.

Amongst some volatility, euro strengthened marginally yesterday. This followed a stream of data showing that economic sentiment is more or less on track with consensus. This strengthening occurred despite relatively unfavourable inflation data out of Germany, with the MoM figure actually showing deflationary pressure within the German monetary system.

Today could see a lot of volatility in euro, with data releases including, the unemployment rate for the eurozone, expected to post 12.1%, higher than the previous reading of 12%; as well as CPI for the eurozone, with a consensus of 1.6% YoY. Data releases deviating too strongly from the consensus could see a high level of volatility in euro today.

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Written by Tom Tong

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