Portugal rocks markets - Yen rallies on uncertainty

Claire Hogarth11/Jul/2014Currency Updates

GBP

London closed with Sterling down a touch against the Dollar and trading flat against the Euro.

The Asian session has seen a slight retracement GBP/EUR continues to test key resistance levels below 1.26.

Heads swung to Threadneedle St over lunchtime with the city poised for the monthly circus of the BoE IR decision. As expected no changes were implemented- IR will remain at 0.5% The street continues to call a rise for Christmas this year or Q1 2015. Given the evidence of a consistently strengthening UK economy this seems a realistic timescale.

Following on from the disappointing Industrial and Manufacturing figures, yesterday saw another poor release for the UK. Despite government efforts to rebalance the economy it appears the trade deficit is swelling. The nations import/export gap jumped to £9.2B in May up from £8.9B in April and far worse than economists expected.

Construction output set for release today and called to the upside- worth noting all the recent earnings reports from house builders have been strong with share prices seeing impressive rises.

EUR

London closed with the Euro dipping against the Dollar and trading flat against Sterling. Portugal pranged the markets – the recoil hit shares and bond markets. The worry focused on a dodgy state of affairs at Portugal’s biggest listed bank, Espirito Santo. A audit has raised the curtain on a uncertain future at the bank with claims of the books being cooked and the sustainability of the banks position – the shares are down 17.8% and the market is concerned about yet another bank facing the prospect of needing assistance from the ECB, right now the outcome is uncertain but as Portugal is barely out of its bailout program this is a serious situation.

We also saw a dip in EU industrial production with French and Italian figures coming in to the downside.

Data of note today – EUR current account figures at 9.00 GMT

USD

Cable dropped off heavily yesterday morning as negative sentiment from Europe drove buyers into safe havens the Yen is trading at a 2 month high against the dollar and 5 month high against the Euro.

Initial jobless claims were positive in the short run, dropping to 304k for the week, but negative over the long run, at 2.548m, 20k more than expected. The negative uptick in trend pushed cable back up slightly later on. Investors also continued to digest the minutes of the U.S. Federal Reserve’s June meeting, which were released on Wednesday and showed a still-dovish central bank. The Fed didn’t offer any new signals that it is closer to raising interest rates.

Equities suffered their worst daily drop since May this year for similar reasons, ending an extended period of bull runs. Questions remain over whether we have seen the markets peak – a continually dovish central bank would suggest not.

Today we have the Fed’s monthly budget statement.

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Written by Claire Hogarth

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