Choppy start to a volatility filled week
03/Jun/2014 • Currency Updates•
A volatile day in currency markets belied the nervous affliction currently suffered by investors ahead of Thursdays ECB policy announcement. Varying arrays of positions were taken above and below open value, as everyone tries to get ahead of the game. Sterling took advantage, stealing 0.4% on the euro and a marginal gain against the dollar.
We had a stream of mid-tier micro data from the UK yesterday, including Markit manufacturing, mortgage approvals, consumer credit and individual lending, and one low level macro piece in money supply. The biggest mover was mortgage approvals, which dropped by nearly 2k in April, and the other releases were either slightly negative or even.
Not a lot for us to get our teeth stuck in to today either, with only house prices and construction PMI. We look forward to more action at Thursday’s interest rate decision.
A usually docile euro dollar pair moved around 0.7%, with the single currency shaken up and down in 0.4% spreads throughout the day. It ended up down against both majors.
The jittery disposition of euro buyers was not helped by a poor set of Markit data released early on. Manufacturing indices dropped in all but one of the countries surveyed, with France standing out from Spain, Italy, Germany, Greece and the EU as a whole. However the figure, although increased, was still at 49.6, below the all-important 50 mark that signals expansion.
German inflation also disappointed to the downside, coming in at a measly 0.9% YoY and actually contracting 0.1% MoM, a final warning bell to Mario Draghi ahead of Thursday’s decision perhaps.
A big day for the euro today, with Eurozone inflation and unemployment released. A poor inflation reading will surely send markets aflutter.
The dollar took its lead from the pound yesterday, taking strong positions against a weak euro. The side story to any euro weakness this week will inevitably be which of the other G3 currencies benefits. Investors long on the euro will invariably look to take long positions elsewhere, so this week could tell us something about the market’s long term view of the pound and the dollar.
Markit was kinder to the US than it was to the euro, showing a strong 56.4 in the May manufacturing PMI. This is still marginally below the UK’s 57.0. ISM also read the US manufacturing sentiment at a healthy 56, although construction spending disappointed at just 0.2%.
Equities continued their recent bull run, with the S&P 500 extending to another record close.
Today we have not much apart from MoM factory orders for April.