US sales figures boosts dollar

Tom Tong14/May/2013Currency Updates

USD

The dollar strengthened against most major currencies as a result of a surprise rise in US sales in April. Data revealed that headline retail sales rose 0.1%, against forecasts for a modest decline and after a 0.5% drop in March. A recent spate of improved data from the Greenback supported views that the economy remains resilient.

The dollar continues to be its strong performance of late which has been further enhanced by the central bank of Japan continuing its aggressive monetary easing as well as concerns of a negative deposit rate in the eurozone. In contrast to this there is a growing expectation the US will scale back its asset buying program this year with the Federal Reserve Bank of Philadelphia President Charles Plosser reiterating that he believes the Fed should curtail its purchases as early as its next gathering for June 18-19. He also stated his belief that the unemployment rate should fall below 7% by the end of the year thus ending the program all together.

GBP

Yesterday was a quiet day from the UK except for housing data released by the royal institution of chartered surveyors which showed its home price index rose to 1 from -2 in March. However with a stream of data released from the Eurozone and retail sales from the US it proved anything but a quiet day. The pound lost ground against both its main counterparties the EUR and the USD hitting its lowest point since April 25 against the Greenback. Sterling has strengthened 1.9 percent in the past month the third best performer after the Canadian and US dollar of ten developed – market currencies tracked by Bloomberg correlation- weighed indexes.

Prime minister David Cameron ceded to rebellion from within his own conservative party , offering to support a bill authorizing a referendum by 2017 on the UK’s continued membership in the European Union. The move is Cameron’s second attempt in four months to quell calls for a bill to be passed taking a more hostile line to the EU. In January he promised to renegotiate the terms of Britain’s membership to reduce the Bloc’s influence and out the result to voters by 2017. Recent events such as the emergence of the UKip Party and its gains in local elections and continued rebellion from his own back bench has forced the PM’s hand to produce a draft bill today.

In other news the equity markets pushed to fresh highs with the FTSE 100 closing at 6,631.76. Partnership Assurance is expected to unveil plans today for a 1.4bn float the biggest IPO so far of 2013.
There is no top tier data out today, and of course all eyes are still trained on the BoE inflation report and Gov Mervin Kings last speech tomorrow.

EUR

The Euro gained against a basket of currencies yesterday as European stocks declined amid the release of important economic reports from Europe today.

Today we look towards the report on euro-zone industrial production in March as well as Germany’s gauge for investor confidence – the ZEW – for May. The German index, if positive will offer some upbeat news amid a generally dim growth picture for the Eurozone as a whole. Then on Wednesday Germany’s first quarter GDP figures will be released.

Economist expect the ZEW to rise to 40.0 from a month earlier as analysts expect the reading to benefit from the strong rebound in equities.

Elsewhere in Europe, Greece’s prime minister said his country plans to return to the bond market for the first half of 2014. Greece has been barred from the International capital market for four years. In other news Italian bonds rallied as the gridlock ebbed, even as Berlusconi advocated rolling back the austerity measures promoted by Mario Monti.

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Written by Tom Tong

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