Sterling's bull run continues

Tom Tong28/Mar/2014Currency Updates

GBP

The pound looks set to be the star performer of the week after recording gains for the third consecutive day against its major pairs. Sterling rocketed up 0.6% against the euro and a similar amount against the dollar. The greenback managed to pare down some of those gains in the afternoon session but still leaving the pound half a cent to the upside for the day. It is now 1.5% higher for the week and back at those monthly highs we saw a couple of weeks ago across the board.

The catalyst for yesterday’s rise was an excellent set of retail sales data for last month. Retailers managed to flog 3.7% more than they managed in February 2013 and 1.7% more than January this year. Both readings were noticeably above expectation.

Elsewhere David Cameron got a boost from an unlikely source, as the German Finance Minister backed up the Prime Minister’s plans for renegotiation. In a joint Financial Times article with George Osborne, Wolfgang Schauble, who has long been a keen proponent of closer monetary integration within the Eurozone, wrote that non-Eurozone members of the EU must not be disadvantaged when those with the single currency increase their economic links.

Today we have GDP figures for Q4 last year, which is expected to show strong growth YoY but slightly weaker QoQ numbers. It will also be interesting to see the government’s current account levels as a marker of the progress in spending cuts.

EUR

The euro has been steadily declining all week and yesterday was no exception, losing ground against the greenback and the pound. The remarkable euro strength we witnessed at the end of last month has now retraced and the question is now whether the single currency will settle into this negative trend, as analysts have long predicted, for the long term.

Italian business confidence for March dropped in under expectation at 99.2, although this is still an improvement of February’s reading of 99.1, whilst France took another baby step in the right direction with a 3 point rise in consumer confidence MoM for March.

In Italy, Matteo Renzi’s sweeping spending cuts, promised in order to fund a wide scale tax cut, began with the sale of the government’s 151 official cars, including Maseratis and Alfa Romeos. Baby steps, but progress nonetheless.

Action today comes from five of the Eurozone’s 17 members, with titbits of data from France, Germany, Italy, Spain and Portugal. The pick of the bunch will likely be Germany’s inflation reading, expected to drop off slightly to 1.1% YoY for March.

USD

After losing ground early on against the pound, positive employment data gave the dollar some strength, although it wasn’t enough to wipe the gains completely and it still ended down by about half a cent. EUR/USD trading was again flat yesterday despite the economic news from the US.

The majority of data from the US yesterday was positive, particularly initial and continual jobless claims, which came in at 311k and 2.823m respectively, far below expectations. If US employment data continues in this vein into April and May, then January/February’s slump will be consigned to the history books as a weather-related anomaly.

The rest of the data was up and down, with personal consumption expenditures coming in strongly and home sales and annualised GDP dropping off slightly.

The S&P 500 overtook the NASDAQ yesterday as the best performing US index of 2014, with the NASDAQ on course for its first March fall since 2005. The different weighting methodology of the two bourses means the NASDAQ is more representative of the performance of larger companies with a higher market cap, while Standard & Poor’s index is less reliant on size and more on share volume.

Today we just have personal consumption expenditures.

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Written by Tom Tong

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