Strong performance from the pound after exceptional production data

Tom Tong09/Apr/2014Currency Updates

GBP

Massive gains from the UK yesterday, pushed up past 4 week highs against the dollar and the euro. Sterling took over a percent from the dollar, and 0.4% from the single currency.

The huge swings yesterday were due to outrageous manufacturing and industrial data released early on, while upgraded UK growth forecasts from the IMF sustained the momentum over the course of the session. Industrial production came in at 2.7% YoY and 0.9% MoM, with manufacturing jumping to 3.8% and 1.0% YoY and MoM respectively. All four measures of economic activity were much above expectations, which accounts for the large swing seen in the markets.

The IMF has upgraded its growth forecast of the UK economy for the second time this year, revising upwards to 2.9% for 2014 and 2.5% for 2015, which would make it the best performing of the G7 countries. At its Washington summit, the IMF’s far-reaching bi-annual World Economic Outlook was positive pretty much across the board, predicting an upbeat 3.6% global growth this year.

The news will go down particularly well with George Osborne, as he prepares to make a speech in Washington criticizing the IMF for its lack of support for his deficit reduction scheme.

The pound will look to push on today with a positive trade balance, released early on.

EUR

There wasn’t much the single currency could do against a rampant pound yesterday; it managed to lose over a cent without really realising what had hit it. Against the dollar trading was again flat.

The only bit of data from the EU yesterday came from Paris, as French national budget figures showed a slight decrease in the trade deficit for February, which was 3.4bn Euros. The IMF also released growth forecast for the Eurozone in this year and next, 1.2% and 1.5% GDP for 2014 and 2015.

This morning it was Germany’s turn to release budget and trade data, which showed a reduction in the overall trade balance to 15.7bln EUR, over 2bln EUR under expectation, with exports falling and imports rising 1.3% and 0.4% respectively. These readings are historically quite volatile, but today’s data may reinforce Mario Draghi’s concerns over the strong euro.

That is it in terms of data for today.

USD

It was a mirror image of the euro for the greenback yesterday, losing ground against the pound and trading flat against its continental rival.

The battle for supremacy between the dollar and the pound has featured many twists and turns in recent times, and yesterday’s IMF global growth revision, which placed the UK on top spot ahead of the US, has swung the pendulum back in sterling’s favour. With growth and unemployment pretty much neck and neck, investors will be paying attention more than ever to the two central banks, and who of the BoE or the Fed blinks first and raises interest rates.

Minutes from last month’s FOMC meeting are set for release today, with markets hoping for some clarity over Janet Yellen’s startling comments about US interest rates a couple of weeks ago. Some explanation for the Fed’s relatively dramatic alteration in forward guidance would also help soothe jittery investors.

Data out today includes mortgage applications and wholesale inventories, while FOMC minutes are released this evening.

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Written by Tom Tong

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