Quiet day of of FX trading as stocks surge to fresh highs, with markets awaiting BoE meeting tomorrow

Tom Tong08/May/2013Currency Updates

Sterling

The pound weakened for a second day against the euro after industry reports showed U.K retail sales unexpectedly declined last month. The British Retail Consortium highlighted sales dropped 2.2 percent in April, from a year earlier. The pound weakened despite British car showrooms enjoying their busiest April since 2008, last month. New registrations in April were up 14.8 per cent compared to a year ago with 163,357 cars bought during this month. In summary the British car market has grown for 14 straight months. Moreover, a separate report is forecast to show U.K. house prices increased in April. Halifax; the mortgage unit of Lloyds Banking Group Plc will say today that Home values rose 0.2 percent from March, highlighting the UK’s continued performance ahead of the troubled eurozone as consumer confidence, attractive finance deals, and wider market factors continue to drive consumer demand.

Sterling was little changed against the dollar. It must be stressed that The U.K. currency has appreciated 1.9 percent in the past month; the best performer among 10 developed-market currencies. Meanwhile, the dollar rose 0.2 percent, and the euro gained 1.1 percent.

The Bank of England’s Monetary Policy Committee starts a two-day meeting today.

EUR

The euro traded a fairly tight range against the dollar and strengthened by 1% against the pound yesterday. Volatility against the dollar dropped to the lowest in four months. A look at currency options prices showed that one week implied volatility for EUR/USD stood at 7.6%, the lowest since the beginning of January. Calm seems to have returned to European markets since Draghi’s speech last week as is clear in peripheral bond yields when compared against the German bund, as 10 year Spanish and Italian debt yield contracted by over 2.5%.

Yesterday we also saw a bit of positive news for the euro with German industrial orders for March increasing 2.2%, ending a weak cycle of data. Interestingly, migration figures in the eurozone highlighted the differing fates of the periphery and core with overall migration into Germany jumping 13%.

USD

Last Friday’s better than expected US Non-Farm Payroll data would have had a more beneficial effect on the Greenback were it not for the Fed’s midweek assertion that the US’s labour market will need to improve ‘considerably’ before it will consider cutting back on its controversial asset purchase programme. At present, the Fed has stated that there is a large possibility of increasing this scheme. The dollar is forecast to struggle while this remains the case.

In stocks news, the Dow smashed through the 15,000 mark reaching the highest point in its history. Analysts have stated that this artificial growth is not in line with real growth and there is potential for a large crash during the summer.

Print

Written by Tom Tong

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