Euro bounces back despite poor inflation data

Claire Hogarth04/Jun/2014Currency Updates

GBP

Another volatile day in the markets saw the pound making early gains against the euro, before dropping off and then bouncing back to end marginally below the open. Trading against the dollar followed a similar pattern, albeit in tighter ranges.
Early housing market data showed an 11.1% YoY increase, the highest level since June 2007. There are signs however that the housing market is beginning to slow down, as shown by a sub-par domestic construction index. PMI for May was 60 with 60.8 called.
Sterling will look to reverse these losses over the next couple of days and in all likelihood, if Draghi doesn’t disappoint, reach for fresh new highs.
Today is light on data, only Markit services PMI is notable.

EUR

The euro reversed Monday’s losses yesterday against both the pound and the dollar. It found some resistance at the +0.5% level but still ended the day session around 0.25% up.
Yesterday saw Eurozone inflation reach a measly 0.5, the joint lowest level since October 2009 and only a quarter of the European Central Bank’s target of just under 2%. Needless to say, this dire reading combined with Germany’s disappointing figure from Monday, puts a mountain of pressure on Mario Draghi to act tomorrow.
Better news came from the employment sector, with unemployment dropping off to 11.7% from a predicted 11.8. Although still horribly high, we might have some of those elusive ‘green shoots’ of recovery.
GDP figures released today for Q1 will add weight to that as yet tentative claim if it comes in on the high side. We also have Markit services PMI from across the EU.

USD

The dollar suffered against its major pairs during the day yesterday, but fought back over the Asian session to begin this morning in a better position than yesterday.

Data was again light from across the Atlantic; only factory orders, at 0.7% for April, provided any interest. An increase in vehicle sales also gave indication that consumers are still willing to spend.

Wall Street saw the first loss day of the week, as investors exit the market ahead of certain ‘risk events’ – EU monetary policy and Friday’s NFP. Equities are relatively volatile investments, so when short term market projection is uncertain, more risk adverse investors will move away from stocks.

Today is more exciting, with mortgage applications, employment change, trade balance, ISM manufacturing and Markit services PMIs. The Fed’s beige book is also released later on.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.