Soft Chinese data and Crimea troubles slows markets.

Tom Tong25/Mar/2014Currency Updates

GBP

The pound started an important week data wise with some apparent trepidation, going nowhere against the dollar and only seeing a little volatility on the euro. It did see a gain of 0.3% against the single currency during the morning session but trickled back down to even over the course of the afternoon.

Trading was particularly flat against the Greenback, a market sentiment that reflected the mood of equity markets in the US and UK. The FTSE all world was down 0.4% and the S&P 500 lost 7 points from the open, whilst the NASDAQ was trading under its five week average.

Investors will surely be more focused today, when February CPI is released. A solid 1.6-7 is being called, which is still close enough to the 2% to allay any fears of following the Eurozone into dangerous levels of low inflation. GDP, the UK’s trump card, is set for release on Friday, with a strong reading being touted from Threadneedle Street to Downing Street.

A multitude of data out this morning, with particular highlights including mortgage approvals for February and a bunch of inflation data.

EUR

A bright start for the euro faded quickly, as persistent doubts about the stability of Ukraine in the near future, once again hit European markets. Despite strong data from France and Germany, the euro seemed unable to make any headway, dropping 0.1% in a 10 pair index. Like sterling, trading against the dollar was pretty flat, although a late rally in the afternoon gave euro backers a little cheer.

A day of positive macroeconomic news began with French Markit services and manufacturing indices punching above 50 for the first time since the first quarter of 2012, at 51.4 and 51.9 respectively. The bullish reading, which indicates an expansion in the sector, was around 4 points above expectation and is another sign that the ‘sick man of Europe’ tag was perhaps a little premature.

Elsewhere in France, the far right National Front party took huge strides towards power in yesterday’s municipal elections, winning one mayor-ship and staking claims for more in next Sunday’s second round of voting. The surge of popularity came off the back of widespread disillusionment and disappointment with the socialist Francois Hollande, whose economic policies are widely regarded to be failing. Yesterday’s positive news will please Monsieur Hollande perhaps more than most, although the keys to people’s ballot slips will ultimately be through jobs and wages.

Markit also produced its monthly survey for Germany and the Eurozone as a whole. Both readings were below expectation and below February’s reading, but still over the all-important 50 mark with room to spare.

There is nothing spectacular from the Eurozone this week, although today includes a speech from ECB president Mario Draghi. Arguably the most powerful central banker in the world, he rarely fails to move markets with his speeches, and investors have learnt to hang on to every word. Today could see some movement later on in the afternoon as a consequence.

USD

A particularly dry day by dollar standards, with almost no movement against the pound and only a late drop on the Euro to provide any excitement. The G10 weighted dollar index traded in a tight range of about 0.2% each way for most of the session.

It is possible that markets are still processing last week’s FOMC interest rate policy change, with investors unsure of how to play their short and medium term positions. It is probably safe to say that we won’t see an interest rate rise this side of Q3/Q4 2014, but the split consensus among members of the Fed makes longer term predictions unstable territory.

This uncertainty could be another reason why the dollar is yet to deliver on the expectation heaped upon it at the beginning of the year; compared with the MPC, where all 9 members voted in harmony last time out, the Fed looks divided.

Yesterday’s data was thin from the US too, with only Markit PMI for March released, at a slightly worse than expected, but still positive 55.5. More data of note out today, including red book indices, consumer confidence and a series of housing market indicators.

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Written by Tom Tong

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