Sterling surges up to new highs

Tom Tong07/May/2014Currency Updates

GBP

Sterling powered up to fresh 5 year highs early on yesterday and kept climbing throughout the session. By the close of play in the UK it was up a cent on the dollar and a quarter percent against the euro.

It was a Markit PMI survey that once again provided the fire for sterling’s balloon, with its April services sector reading beating expectations by 1.1, to come in at a heady 58.7. The strong reading is indicative, not only of a generally growing economy, but a sectorally balanced recovery. The UK’s two biggest sectors, services and manufacturing, have both posted upbeat PMIs in as many weeks.

Today marks the start of the Bank of England’s monthly two day monetary policy committee meeting. Although a rate hike is not expected, analysts are suggesting this month’s meeting will be the most divided yet, with certain breakaway members bullish about a potential rate hike coming sooner rather than later.

The ongoing AstraZeneca-Pfizer saga took another twist yesterday as the British pharmaceutical giant released detailed revenue forecasts showing an expected 75% growth over the next decade, increasing its valuation from the $65 billion of Pfizer’s latest bid.

Data out today includes Halifax house prices.

EUR

Positive early data gave the euro a lift against the pound and helped it resist sterling pressure. The single currency finished just down on the pound and about 0.3% up on the greenback.

Markit, who yesterday launched their initial IPO prospectus ahead of this summer’s floatation, had a busy day in the Eurozone yesterday. We had services PMI for April from Spain, Italy, France, Germany and across the Eurozone, as well as EU wide retail sales. Most readings were positive, although Germany was disappointing. Retail sales across the bloc were down YoY but up MoM.

Pleasing unemployment data from Spain, the driving force behind yesterday’s early euro strength, dropped by 111k in April, way above expectation.

Today we have March factory orders for Germany, industrial output, and imports and exports.

USD

A poor day for the greenback saw it lose ground against its major pairs. It succumbed to the sterling charge early on and was also powerless to resist a euro rally.

The US has had a poor first quarter, epitomised by 0.1% growth, and will need to show strong signs of improvement this quarter if investors are to keep backing the greenback. Data was minimal yesterday, although Redbook indices for early May were positive.

The key this week will be Yellen’s congress testimony, scheduled to start this afternoon. On the agenda will hopefully be some indication of the Fed’s short to medium term plan, after poor GDP did not halt the easing off of QE. Anything unexpected will lead to pivots.

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Written by Tom Tong

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