Euro edges ahead on an otherwise quiet day

Tom Tong25/Feb/2014Currency Updates

GBP

The pound had a relatively bumpy ride yesterday, dropping off against both the dollar and the euro before bouncing back up. In the end it finished up pretty much square with where it started, a cent or two short of those 3-yearly highs.

Sterling will look to have a better time of it this week, after a steady decline over the previous seven days erased much of early February’s good work. The slightly disappointing unemployment data was the headline figure from a bunch of below par releases, which included inflation data and retail sales.

GDP, the UK’s economic trump card, is expected to come in strongly, and that should ease some fears. The UK government, however, will be conscious of following in the footsteps of the US, which relied on growth figures to pull it along during its economic hiccups early this year.

This week will see GDP on Wednesday and Mark Carney speaking on Friday, with mortgage approvals and an inflation report out today.

EUR

Early euro strength pushed the single currency up a quarter of a cent on the dollar and almost half a cent on the pound in the morning session. Session highs saw it take 0.5% from sterling, although it later retraced to even.

Germany was once again the driving force behind euro strength as an IFO triptych came in above expectations. Measures of business climate, expectations and current assessment came in at 111.3, 108.3 and 114.4 respectively, all up from the previous reading. YoY CPI for the eurozone as a whole was rounded up to 0.8% for January, up 0.1% on expectation. Elsewhere, Moody’s, the ratings agency, upgraded Spain’s credit rating and a breakthrough in Ukraine eased tensions in the markets, lending support to the euro.

Data from the eurozone this week will be from across the provinces rather than any central body, although Friday does see February inflation figures released – an important figure in the current climate.

This morning we saw German GDP clock in at 0.4% for Q4 QoQ, and 1.3% YoY. The reading was bang on expectation and up slightly from Q3. That is pretty much it for European data releases today, although the European Commission will be releasing some growth forecasts, which may lead to pivots.

USD

The greenback followed the path of the other two major currencies yesterday, catching pivots on both side of the axis. There was only a subdued reaction to some US data, as investors seemed to focus their attention more on the other side of the Atlantic.

Yesterday saw another trio of bad data from the US, as Chicago Fed activity, market PMI for February and a Dallas manufacturing index all dropped off from their previous reading. The tricky question for the US at the moment is whether an apparent slowdown in the pace of the recovery is to do with seasonal weather, Fed tapering or simply just a stalling economy. The answer to this question will have a major bearing on policy in the future, and any central bank reaction will lead to pivots in the money markets. The US once again will looking to GDP as it’s get out of jail free card.

US equity markets also had a record day yesterday, missing out on a record close by just a cent after intra-day spikes hit record levels. A bout of merger activity led the charge, which consequently translated into better performances in Europe and Asia.

US GDP is released later in the week, and markets will be paying close attention to Janet Yellen when she speaks on Friday, but otherwise it is a relatively quiet last week of the month for the US. Today sees a raft of very minor data, of which red book indices and consumer confidence service will spark the most interest.

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Written by Tom Tong

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