Sterling at five month high ahead of crucial inflation report
13/May/2015 • Currency Updates•
The UK currency continued its remarkable surge against its major peers, ending trading yesterday 0.8% higher on the Dollar and hitting a five-month high in the process. Sterling continues to be well supported by the re-election of the business-friendly Conservative government.
The Pound’s rally was given a boost by impressive output data on Tuesday morning. Industrial output rose by 0.5% on an annualised basis in March to its strongest position since September. This above forecast print was helped by a resurgence in oil and gas production. Similarly, manufacturing production also exceeded expectations in the third month of the year, climbing by 1.1% year-on-year, having grown by 0.4% on the previous month. While impressive, such figures still remain relatively low, struggling to expand in the face of a strong pound and heightened business uncertainty. However, the NIESR growth estimate for the three months to April improved modestly yesterday, climbing to 0.4% expansion, from a revised 0.3% a month earlier.
ONS data this morning is expected to show that unemployment in the UK economy fell in the three months to March, which would no doubt provide a further boost to the Pound. More importantly for Sterling, Governor of the Bank of England Mark Carney will be presenting the central bank’s inflation report. Perceived hawkishness or dovishness by the markets will likely cause significant movement in the UK currency.
The Euro experienced another impressive performance against Greenback on Tuesday, climbing by 0.6% as it continues to trade around a two-and-a-half month high.
Another day with no major data in the Eurozone meant all attention once again turned to Greece as Finance Ministers met for another EcoFin meeting in Brussels. There were no surprises as the meeting failed to show signs of any further progress over the bailout crisis. Athens instead an-nounced that Greek cash reserves were running dangerously low at just €600 million. This came just hours after Finance Minister Yanis Varoufakis claimed the country’s financial situation was “terribly urgent”, with Greece just two weeks away from a cash crisis.
A very busy day in the major economies will kick-off in the Eurozone with the release of German growth and inflation figures at 7am GMT. This is followed by Euro-area wide growth at 10am.
The Greenback ended the day lower against its peers once again on Tuesday, falling by 0.5% against its trade weighted basket of currencies. The US Dollar index has now fallen by close to 6% since peaking a month ago.
There were mostly second-tier economic releases in the US on Tuesday including mildly disappointing labour figures. JOLTS job openings, which measures the number of job vacancies in the country, declined from last month’s multi-month high to just under five million. In contrast, the monthly small business optimism index conducted by NFIB surprised on the upside at 96.9, following an increase in hiring activity. Elsewhere, the Johnson Redbook index, a measure of national chain-store sales, was flat in the first week of May compared to a month previous.
Retail sales data in the US will dominate afternoon trading when announced at 1.30pm London time.
Rest of the world
Crude oil prices soared by around 3% yesterday, providing a boost to many commodity driven currencies. The Australian Dollar, also helped by the release of a public-friendly budget, the Norwegian Krone, and Russian Rubble all appreciated by one percent or more against the USD.