Global markets rallied on Tuesday bolstered by reports that the central bank stimulus measures may continue and the release of strong US economic data

Tom Tong29/May/2013Currency Updates

USD

Consumer Confidence for May in the US was remarkably better than expected rising to 76.2 from a forecast of 71.00 its highest level since 2008 and home values also jumped 10.9% the biggeset rise in 7 years. This boosted the S&P index rebounding from a weekly loss. Other than that from the worlds largest economy there were no releases of note.

Wall Street opened more than 1% higher following strong gains in European stock markets as the Dow hit fresh highs.

Moody’s changed its outlook for the US banking system to stable from its negative status which it held since 2008, as the country’s economy begins to rebound and the banking sector stabilises.

There is an abundance of data releases due out today (Mortgage Applications, Redbook index, Bill Auctions and Rosengren Speech) but we do not forecast any of them to have an impact on the economy as markets focus on inflation, stimulus and Tier 1 economic data.

GBP

It was a quiet day for data out of the UK yesterday but the pound lost ground against a strong dollar. The pound traded a relatively tight range against the Euro. However, a survey released by Lloyds TSB highlighted that UK consumer confidence was at its highest in three years. Despite the more positive tone from consumers the situation is still dire on the high streets with the Centre for Retail Research claiming that one in five shops will have disappeared from the high streets by 2018.

It is another quiet day for data releases in the UK with only the CBI survey being released. Analysts will be looking to MPC member Bean who is speaking at 9:30 for any further clues on direction of monetary policy.

EUR

With US consumer confidence at its highest levels of the past five years, the euro marginally extended losses versus the dollar yesterday. With tier-one data from the Eurozone being thin on the ground so far this week, last week’s PMI confidence indeces which indicated a marginal improvement have begun to fade into the background and market focus is beginning to shift towards the upcoming interest rate decision from the ECB on 6th June. After cutting the benchmark rate to 0.5% at the previous meeting earlier this month, Mario Draghi alluded to the fact that the central bank would be ready to reduce borrowing costs further if performance continued to disappoint.

With increasing speculation regarding the potential imposition of a negative deposit rate on the back of recent poor performance, ECB Governing Council Member Christian Noyer yesterday downplayed its merits and expressed caution, suggesting that it is “technically very delicate” and that previous experiences have not all been “convincing.” In the same interview, Noyer expressed that he is currently seeking consensus among European central banks for providing liquidity support in Chinese yuan – discussions are ongoing with regards to putting in place what he calls “a public backstop” as China continues to seek ways of making its currency more widely available on a global basis.

In other news, according to a recent forecast from Barclays, the German economy will grow at the rate of a mere 0.5 per cent this year – this downgraded forecast is on the back of German GDP regaining just 0.1 per cent in the first quarter of this year.

ZAR

The Rand weakened against its major counterparts as GDP growth slowed to an annualised 0.9% from 2.1% in Q4. Sterling is at its strongest point since March 2009.

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Written by Tom Tong

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