Dollar claws back some losses following Friday's non-farm payroll employment surprise

Tom Tong11/Jun/2013Currency Updates

GBP

A raft of upbeat data and figures out yesterday showed that the UK is heading back towards sustained growth. According to a Legal and General study published yesterday fewer households are in financial trouble now than a year ago. The proportion of housholds with money left over each month has risen to 45 from 43 % conversely the number that are struggling to cover their bills has fallen to 16 from 15 %. The organisation for Economic Co-operation and Developments (OECD) leading index, also out yesterday suggests the the UK will be back towards its trend rate of economic growth in six months time. the think tanks indicator rose to 100.8 a level that indicates long term growth. Recruiter Manpower also highlighted a five % rise in London firms that are planning to take on more staff this quarter.

Despite all this Sterling continued to Slip against the dollar as the markets were still reacting to a better than expected Jobs report out on Friday. The pound also traded in a tight range against its Euro counterparty as there was no top tier data released from the 17 nation zone that moved the markets in any particular way. Analysts believe that stronger UK data out recently should limit losses against the greenback, while also making it unlikely that the Bank of England will adopt more aggressive monetary easing when Mark Carney takes over as governor from next month.

This week UK industrial data out today and a jobs report for April out Wednesaday will provide clues on how durable the UK recovery is. While slightly better British economic data last week pointed to modest growth and eased concerns that incoming Bank of England governor Carney might opt for extra stimulus, analysts said sterling could be weighed down by prospects of more easing later in the year if the recovery showed signs of flagging.

In other news the British equity markets treaded water as soft Chinese data put an end to recent global bulls runs in equity markets. The mining companies within the FTSE dragged it lower after signs Chinas growth is slowing again. Mulberrys hares also went into a tail spin as its creative director Emma Hill credited with the companies remarkable growth is to quit because of a management dispute. The brands shares that have risen ten fold since she has joined dropped a huge 8.1% yesterday.

EUR

The ECB start a 2 day hearing today regarding its OMT programme at the German Constitutional Court, but the central bank may face increased criticism over the near to medium-term as the governments operating under the fixed-exchange rate system become increasingly reliant on monetary support.

Mario Draghi President of the ECB spoke yesterday on the central banks asset purchase policy, he affirms that the central bank would only purchase debt in order to save the whole of the Eurozone as opposed the specific countries. This was done to allay German tax payers fear that they would be propping up all of the other members states.

In Italy the industrial output fell by 4.6 percent last month which was even lower than expected by analysts, this coupled with the seventh successive quarter shows that Italy remains firmly in the grip of recession. In total Industrial production in Italy has declined by 11 percent since 2010, the Italian government also announced a downward revision for the first 3 months of this year, meanwhile in France Industrial Production rose by 2.2 percent on the month after a previous contraction of 0.6 percent last month.

Except for the previously mention of the German Constitutional Court hearing there a no significant figures out in the Eurozone today.

USD

The dollar started the week positively on news that Standard & Poor’s rating agency had revised its sovereign credit outlook for the US economy to ‘stable’ from ‘negative’. The agency, which is the world’s largest credit rater, downgraded the US economy in August 2011 from AAA to AA+ but stated that recent improvements in the country’s fiscal consolidation meant a further downgrade was less than one in three. Equity markets greeted the news with caution as markets continue to pour over any information that may indicate path the Fed will choose on when to ‘taper’ its monthly asset purchases.

The dollar had a mixed day lossing ground on European economies but rising against the Japanese Yen as the fears grow the Bank of Japan will unveil additional easing efforts. There is limited data released today with any moves to be triggered by information from other economies.

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Written by Tom Tong

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