EUR weakness continues - market primed for UK unemployment rate

Claire Hogarth11/Jun/2014Currency Updates

GBP

London closed with sterling scalping fresh gains against the euro and a minor dip against the greenback. Presently sterling is trading at a 18 month high against the euro and hovering close to a 5 year high against its basket of most traded currencies.

Manufacturing and Industrial production figures yesterday were a pleaser for the wider economy as the city, Bank of England and Westminster is always keen to see evidence of wider economic recovery. Manufacturing is now growing at its fastest pace in more than 3 years; with confidence among industry leaders at highs not seen prior to the recession, one would hope that the momentum and growth is sustainable.

Key play this morning will be the UK unemployment rate- the UK’s unemployment rate is expected to fall to 6.7% from the previous 6.8% which is already the lowest in 5 years. Likely sterling movement today.

EUR

London closed with the euro again dipping across the board closing down against both sterling and dollar. Mid-level data out of Portugal and Greece came in fairly flat and failed to shift the euro price. Right now the euro remains haunted from last week’s European Central Bank actions. Embracing negative rates has encouraged flows out of the zone – put simply the euro is slipping across the board as investors look to borrow euros at super low rates, they take the money and run, tipping the euros into higher yielding assets abroad – the so-called carry trade taking advantage of cheap borrowing and the interest rate differential. Right now the carry looks like it has legs as the ECB has alluded to further possible alteration of monetary policy. Either way the market will be locked in to the lyrics coming out of the ECB and macro data releases.

No data of note out of the Eurozone today.

USD

London closed with the dollar up against both sterling and the euro. The dollar continues to punish the euro on expectations that the Fed could raise IR sooner than called. Market chatter right now is focused on the switch in US economic data to a strong run, including last week’s strong NFP report, after the recent savage weather restricting wide sections of the economy. The Fed is taking a more hawkish stance on tightening monetary policy at its meeting next week. Employment has finally returned to pre-recession levels so it could be a good time for the Fed to strike. The Redbook index came in at a healthy 3.3% and, in a skinny week for data, releases suggest that Thursday’s retail sales will put in a strong number. Equally important is US government bond yields being driven higher which is increasing demand for dollars.

US stocks eased a little yesterday after the recent bull run and string of record highs, however we could easily see a fresh snapback as the market view remains bullish.

Data of note today includes monthly budget statement and mortgage applications.

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Written by Claire Hogarth

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