No clear winners on a mixed day

Tom Tong24/Apr/2014Currency Updates

GBP

Currency markets got back into the swing of things yesterday, after the long weekend, with some bigger swings across the board. The pound had quite a bad day, dropping off early on against the euro and the dollar, although it did retrace slightly over the afternoon session.

There was a triptych of positive data releases yesterday that will please both the UK government and the markets. We saw a 6.4% YoY reduction in public borrowing for March, which also happens to be 10% under the level predicted in last year’s budget, although some commentators have put this largely down to a splurge of stamp duty revenue from the recent housing boom. We also had a CBI study reveal that optimism amongst manufacturers has hit 40 year highs. Lastly, the Bank of England minutes yesterday showed an increase in growth forecasts for the UK economy in 2014.

The BoE minutes showed the MPC voted to keep interest rates at 0.5%. The vote was unanimous, although the committee minutes reveal a less cohesive understanding of the UK’s economic situation. Disagreements centred on the true level of spare capacity in the economy, which Mark Carney has previously suggested is a key barometer of the need for interest rate increases.

Today we have another CBI survey on trade, before retail sales are announced on Friday.

EUR

A mixed day for the single currency yesterday, making upward movements against the pound but sliding the opposite way on the dollar, reflecting a mixed set of data releases.

A busy day for Markit, the business survey machine, in the Eurozone yesterday, both centrally and across the region. We had manufacturing and services PMI from April for France, Germany and the EU as a whole. Positive readings came from the pan-European and German surveys, but France again disappointed, losing a basis point in both sectors.

Portugal joined Greece and Ireland at the bond party yesterday, after flogging €750m worth of 10-year notes at a particularly cheap 3.75%. The country’s successful first foray into debt markets since it received international bailout funds in 2011, will pave the way for it to join Ireland as a graduate of the EU’s 3 year economic rescue package, if it so chooses.

Today we have more German business surveys, as well as hearing from President Draghi later on.

USD

The greenback found some traction yesterday after a slow week, recording half cent upticks against both the pound and the euro. The strength was more on the back of poor EU and UK data than any particular US economic strength, and in fact data yesterday was decidedly mixed.

Markit manufacturing PMI and new home sales both came in under expectation, at 55.4 for April and 0.384m for March respectively. Interestingly though, despite the slowdown in new home sales, house prices actually increased in America last month, pointing towards a growing level of inequality and a boom in higher value properties, much like the one currently seen in the UK.

A more positive piece of news was the bumper oil harvest, pushing up reserves by around 3m. The US, by some estimates, is expected to overtake Saudi Arabia as the largest producer of crude oil in the next decade.

Data out today includes durable goods orders for March, as well as initial and continuing jobless claims.

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Written by Tom Tong

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