GBP and EUR continue to uppercut across the board, rolling off strong data

Tom Tong24/Jan/2014Currency Updates

GBP

Sterling continued to punish both USD and EUR yesterday. This continues to be off the back of the release of the unemployment rate at 7.1% (the biggest fall for over 15 years), much to the markets surprise. We were thin on data yesterday. However, saw UK CBI Distributive Trades come in below expectations at 14, whereby market expectations were 25.

The barrage of questions that followed were all aimed at the BoE and its forward guidance plan. The key one being – is the Bank of England going to raise interest rates if we see unemployment dip below 7%? Mark Carney, not being a man that hides from the mass onslaught, coolly made clear that there is “no immediate need to increase interest rates.” The level headed governor went on to say that there should not be too much focus on simply one indicator but rather a broader range of the economy such as real wage increases.

In light of the months of positive data in the UK, David Cameron has also began a plead to get businesses to return their operations to the UK. Using the recent boom in shale gas as a bargaining tool to help reduce energy costs for businesses. It seems that due to the higher demand for better service and continuing spending power, businesses have started to move operations back into the UK, showing more clear growth and prosperity for the UK.

No data of note out today although the markets ears will be tuned to Carney speaking in Davos.

EUR

Smashing day for both the euro and eurozone yesterday. Fresh gains were scalped across the board and most bourses saw uplift. London opened with the curtain lifting on French manufacturing PMI which came in higher than expected. London closed with the euro up across the board. It remains well supported this morning, although has retraced a little.

Following positive French data yesterday we witnessed a classic domino effect with massive buying interest throughout the day as smart money tipped in to lead a rally. Equally the euro rose in tandem to consistent positive data throughout the day. Overall December saw eurozone economies weigh in their fastest pace of growth in two and a half years as the currency bloc attempts to emerge from stagnation. Whilst gathering pace the upturn remains fragile and consistent strong data is yet to be a proper trend.

Data releases of note today include- Spanish PPI and Italian retail sales. We also have Draghi talking in the afternoon who will doubtless again be pressed hard on his views over the eurozones economic performance, he is always tight lipped so its unlikely we will hear any new lyrics.

USD

The greenback was on the ropes against sterling yesterday with the pound punching to a two and a half year high following a continuing sterling rally stemming from exceptional employment data out of the UK this week and a revision of IMF growth forecasts for the UK. The dollar also hit the canvas against the euro with a rally following strong PMI.

Eurozone PMI was much higher than expected giving the euro a bump against the dollar. Given a lack of positive news for the eurozone recently this unlikely turn of events saw a significant rally.

The Dollar has mostly bounced around resistance levels over the Asian session with no notable movement. Its unlikely to jump around today with most in the market awaiting next weeks FED meeting which will reveal how the next round of tapering will ensue. Disregarding poor Non-Farm Payroll from the shocking weather last week they are widely expected to do another round of tapering to the tune of $10bln.

No data of note out of the US today.

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Written by Tom Tong

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