EUR price rises. Wall St closes at record highs

Tom Tong13/May/2014Currency Updates

GBP

London closed with sterling seeing a slight rise against the dollar and euro.

The only economic data of note showed retail sales are continuing to rise. Currency markets mostly traded within tight bands with no notable pivots.

Notable movements in gilts are further evidence of market expectations changing on the likely timescale of a Bank of England IR hike. Government borrowing costs soared on mounting expectations that the pace of the recovery will force the BoE to raise rates before the end of the year. 2 year bonds hit their highest level since July 2011.

The premium on 10 year gilts over German bunds flew to a monumental 16 year high. The rising yield and disparity between the pricing on UK gilts and German bunds illustrates 2 key points. Firstly speculation that the BoE will lift rates and secondly that the European Central Bank will peg policy to the floor to drive recovery and fight the worrying levels of inflation.

Only data of note today is the results of the BRC retail sales monitor. Key play for sterling will be Wednesday’s BoE inflation report and growth forecasts.

EUR

London closed with the euro flat against the dollar and dipping against sterling. There is speculation the reversal in euro price seen last week may have stabilised. Draghi’s comments last week gave the currency a hammering. Presently the euro is trading near 1 month lows against the dollar and 16 month lows against sterling. There is further risk of shifts as traders widely expect the ECB to attempt to limit longer term euro strength in a bid to boost the economy.

There is widespread chatter in the market that the euro rally, which kicked off last summer, may be drawing to a close. The short term euro price will be at mercy of the actions of the ECB, long term price will depend on growth across the economy.

German wholesale price index came in above expectations yesterday. This morning will also see the release of the European ZEW economic survey and Italian CPI.

USD

London closed with the dollar flat against the euro and dipping slightly against sterling.

The release of budget figures was testament to the cuts initiated. Right now the government remains on track for the narrowest budget since 2008. The first 7 months in the 2014 budget year saw the deficit total $306B which equates to a 37% decrease from the same period last year.

Most excitement stemmed from equity markets. The bulls were running loose in the NY session with stock markets closing at record highs. The S+P hit its highest ever level rising to 1,896. The DOW also closed at a record high. Easy money and a buoyant market in European bourses are currently driving the shifts.

Data of note out of the US today includes retail sales and business inventories. The key play this week will be Thursday with bundles of data set for release.

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Written by Tom Tong

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