Tag Archives: sterling

UK Inflation Falls and Takes Pound With it

As expected this morning UK inflation figures fell, even lower than what the markets had been expecting. UK Consumer Price Index fell to 2.4%, down from 2.8% the previous month and below market expectations of 2.6%. UK Core Consumer price index was also down 40 basis points to 2.0%, recording a figure below market expectations of 2.3%. UK Producer Price Index and UK PPI Core Output were also down at 1.1% and 0.8% respectively.

In what was a rather busy morning in terms of UK data releases, nearly every piece of economic data released concerning the UK economy was negative. As would be expected Sterling fell right across the board following these inflation figures’ release. GBP/EUR fell to a daily low of 1.1777 however remained within the approximate 1.5 cent range that the pair has been trading within for the last month. Similarly Cable fell to a daily low of 1.5163, continuing the pairs decline since early May with a further test of the 1.5157 level now likely and should this break the next area of substantial support being found at 1.5127.

Much earlier this morning we saw the Japanese Yen return to its depreciating ways following Japanese Economy Minister Akira Amari’s much more coy response regarding the potential end to the Yen’s slide against the Dollar. This comes after the Yen strengthened yesterday following the economy minister’s comment that suggested further weakening of the Yen may adversely impact upon Japanese people. The bank of Japan’s record monetary stimulus program would now appear to be having the desired effect that Japanese finance ministers had initially hoped it would. Figures released in Tokyo last week showed that Japanese GDP rose to an annualized 3.5%, suggesting that the Bank of Japan’s efforts to end a decade of inflation are actually having a positive impact on the economy. This increase in money supply has had the inevitable, yet “unintentional”, effect of depreciating the Yen, which rose to above USD/JPY 100.00 two weeks ago for the first time in over four years, and has consequently lead to a boost in exports. Data released so far suggests that BoJ Governor Haruhik Kuroda may actually be able to reach his ambitious target of reaching 2.0% inflation in just two years. USD/JPY is currently trading at 102.68 and speculation will now grow as to whether the pair will reach 105.00.

With very little data due out this afternoon, trader’s attention is likely to turn to tomorrow where we will see a number of key releases. In the early hours of tomorrow morning the Bank of Japan is set to make their interest rate decision and monetary policy statement, potentially giving the market an indication of how long their extremely loose monetary policy will continue. Moving back westwards, later tomorrow morning UK BoE minutes will be released, followed by the US FOMC minutes tomorrow evening. As Sir Mervyn King comes to the end of his tenure as governor of the BoE, it is unlikely that we will see any drastic information released in the BoE minutes, however the market will be keen to see if the FOMC minutes or Fed Governor Ben Bernanke’s press conference give any indication as to when a reduction in the Federal Reserve’s bond buying program will be brought to an end.

When Will It End?

Surprisingly there is a reasonable amount of economic data due out today despite it being a bank holiday in many European countries. Inevitably this has turned the focus to the UK and US where we will see PMI figures from both sides of the pond today, as well as an interest rate decision and a potentially revealing FED press conference in the US this evening.

With the recent economic data coming out of the US being somewhat negative, market participants will be keen to see whether the US ISM manufacturing PMI is able to surpass expectations of a fall to 50.9 in April. Following this PMI data, this evening we will see a US interest rate decision and crucially the Fed’s monetary policy statement. Whilst interest rates are widely expected to remain at their current level of 0.25%, spectators will be keen to find out whether the FED gives any indication as to when and how speedily they may begin to reduce their bond buying program. Speculation is growing that the FED could well begin to curtail QE before the end of the year however policy makers will be keen to ensure that any reduction in monetary easing does not result in the weakening of an already fragile economy.

The UK Markit Manufacturing PMI figure was released this morning at 49.8, beating market expectations of 48.5, following which sterling immediately spiked to a daily high of 1.1819 against the euro before dropping back. Similarly cable spiked to a daily high of 1.5590 before returning to its current level of 1.5570. Following these spikes in volatility we may well now see markets trade sideways until this afternoon when the release of US PMI figures may induce further market activity.

Please find a summary of this week’s economic calendar below:

01.05.13
02:00 Chinese NBS Manufacturing PMI
07:00 UK Nationwide Housing Prices
09:28 UK Markit Manufacturing PMI
15:00 US Construction Spending
15:00 US ISM Manufacturing PMI
15:00 US ISM Prices Paid
19:00 US Fed Interest Rate Decision
19:00 US Fed’s Monetary Policy Statement and press conference

02.05.13
02:45 Chinese HSBC Manufacturing PMI
08:48 French Markit Manufacturing PMI
08:53 German Markit Manufacturing PMI
08:58 Euro Zone Markit Manufacturing PMI
09:30 UK PMI Construction
12:45 ECB Interest Rate Decision
13:30 ECB Monetary policy statement and press conference
13:30 US Initial Jobless Claims
13:30 US Trade Balance

03.05.13
02:00 Chinese Non-manufacturing PMI
09:28 UK Markit Services PMI
10:00 EU Producer Price Index
13:30 US Nonfarm Payrolls
13:30 US Unemployment Rate

To Triple Dip, or Not to Triple Dip

Movements in Sterling have been relatively restrained this week, with little economic data having been released attention is being focussed on GDP figures due out in the UK and the US at the end of the week. Market expectations are for a 0.1% increase in UK GDP when the figures are released tomorrow morning, however with potential increments being so fine, the margin for error is miniscule. Whatever the result, the effect on the UK economy is likely to be just as miniscule in the short term, however the opposite couldn’t be more true for the UK coalition government and their religious adherence to “Plan A”.

Should the figures tomorrow show that the UK has slipped into recession for the third time in as many years, the subsequent pressure heaped upon George Osborne could be enough to bring the Chancellor to tears for the second time in as many weeks. Furthermore, weak GDP figures would add emphasis to Christine Lagarde’s comments last week that Mr Osborne should consider rethinking the government’s austerity strategy. The comments last week were a surprising contradiction of the IMF’s long standing support for the UK’s deficit reduction strategy, however perhaps after over two years of trying and little signs of improvement in the economy, even the IMF are now beginning to think that a change of plan may be necessary for the UK government.

With very little economic data due out today, attention has turned to Germany this morning where business environment surveys have been released. The German IFO Business Climate and IFO Current Assessment figures showed falls in April to 104.4 and 107.2 respectively. The euro weakened following the immediate release of this data as the figures were substantially below market expectations. GBP/EUR rose to a daily high of 1.1763 before falling back to 1.1739, whilst EUR/USD recovered to 1.2994 after having dropped off to 1.2954 immediately after the IFO data release. Little activity is expected in the markets this afternoon until US Durable Goods figures are released which could stoke some movement, however volatility is likely to be restricted as market participants await the key GDP data from the UK tomorrow and the US on Friday.

Please find a summary of this week’s economic calendar below:

25.04.13
09:30 UK GDP
13:30 US Initial Jobless Claims
23:45 New Zealand Trade Balance

26.04.13
00:30 Japanese Consumer Price Index
04:00 Japanese Interest Rate Decision
13:30 US GDP
13:30 US Personal Consumption Expenditures Prices
14:55 US Reuters/Michigan Consumer Sentiment Index

Currency Matters

Yesterday saw substantial volatility within the markets courtesy of mixed PMI figures released in Europe and a tacit message from Mario Draghi suggesting that the European recovery will take longer than expected. Whilst the BOE’s decision to maintain interest rates and quantitative easing levels at their current level had little impact upon the markets, German and Euro Zone PMI figures falling short of expectations and Mario Draghi’s negative assessment of Europe’s recovery caused a substantial move in the euro throughout the day whilst GBP/EUR eventually closed flat at 1.1777. The dollar experienced similar levels of volatility yesterday following higher than expected US Initial Jobless Claims as GBP/USD closed near a six week high of 1.5225 and EUR/USD also closed up at 1.2926.

Despite the relatively high levels of volatility that were witnessed on both sides of the pond yesterday, the largest market movements were attributed to economic news coming out of Asia. In the early hours of yesterday morning the Bank of Japan committed to a substantial bond buying program worth over half a trillion dollars per year – the size of which took markets by surprise. Unsurprisingly however this lead to the most considerable Yen sell off that we have seen for quite some time with the Yen closing down across the board. The Yen touched a near three and a half year low yesterday against the Dollar and has now pushed above this level with USD/JPY reaching 97.15 so far this morning, whilst GBP/JPY has hit 146.67.
This morning we have seen relatively minor movements in the markets following the release of Euro Zone Retail Sales and German Factory Orders, both of which came out above expectations. Market participants are likely regrouping following yesterday’s volatile trading environment and preparing themselves for the release of the US Nonfarm Payrolls later today. Following the weaker than expected US data yesterday, another subpar performance today for the US jobs market could cause the Greenback to drop off even further, with GBP/USD potentially reach 1.53+.

Pound Punished by PMI

The wait goes on. The wait for positive data concerning the UK economy that is. Whilst it is to be expected that data releases concerning a country’s economic performance will naturally vary from week to week, and month to month, it is far from the ordinary for a country, and in this case the UK, to record consistently negative data for several months. Just as these data releases are out of the ordinary, correspondingly so are the rates.

As we have been reporting for the past few months, since the turn of the year Sterling has weakened at an alarming rate. After having appeared to level off against both the Euro and the Dollar in recent days, hopes had emerged that the Pound may well recover some of its losses. However these hopes were quashed this morning following the release of PMI data across Europe. The UK was expected to record a figure of 51.0 and consequently markets reacted negatively when the UK’s actual figure of 47.9 was released. With positive PMI figures released for the majority of the other European countries this morning, this led to a significant sell off in the Pound. Sterling hit daily lows of 1.1514 and 1.5014 against the Euro and the Dollar respectively immediately following the release, before levelling off.

This afternoon we will see a number data releases from the US including PMI, Mortgage Approvals, Personal Income, and Personal Consumption figures. These figures could stoke further movement in the Dollar which forced Cable to a new eighteen month low earlier today.

Mark Webster

Sterling falls as the UK loses AAA credit rating

The Pound has fallen further this morning as the financial markets react to the loss of the UK’s AAA credit rating. Moody’s cut the UK’s credit rating from AAA to AA1 citing ‘challenges that subdued medium-term growth prospects pose to the government’s fiscal consolidation programme, which will now extend well into the next parliament’. This is the first such credit rating downgrade since 1978. The Pound is now trading at its lowest level against the Euro since October 2011 and the lowest level against the US Dollar since July 2010. The Pound has depreciated 6% this year and further falls in Sterling are possible.

Please do not hesitate to contact the dealing desk on 01695 581 669 to discuss your upcoming currency requirements. If you are concerned about adverse currency fluctuations you can eliminate this uncertainty by using a Forward Contract to secure an exchange rate today for settlement at a later date.

Punch Bag Sterling

Unemployment figures released this morning showed that the UK ILO Unemployment Rate rose marginally to 7.8% from 7.7%, whilst the UK Claimant Count Change improved to -12.5K for the third month in a row. However, this slight glimmer of hope that the UK economy may actually be starting to show signs of recovery, offered little help to the Pound this morning which has taken somewhat of a battering following the release of the BoE minutes.

Sterling plummeted at 9:30 GMT against both the Euro and the Dollar, following the release of BoE minutes which confirmed that three of the nine MPC members favoured an increase in stimulus at this month’s policy meeting. Paul Fisher, David Miles and BoE Governor, Sir Mervyn King were the members who were voted down, though this does suggests that the committee is potentially warming to the idea of additional stimulus in order to help revive the economy. This is something we may well see in the coming months which, whilst potentially helping the economy, certainly wouldn’t do the Pound any favours.

GBP/EUR dropped over a cent in the space of twenty minutes after the BoE minutes were released, before levelling out to its current trading level of 1.1430. Cable faired similarly, as the pair dropped from 1.5439 to a daily low of 1.5294 in less than an hour, and is currently trading at 1.5308. The GBP/EUR charts aren’t looking too favourable for the Pound either and the general outlook is rather bearish for Sterling at the moment. However, the Euro Zone has by no means ‘recovered’ and with elections in Italy coming up and rumblings from a number of European leaders that the Euro is far too high at present (potential for EU interest rate cuts), it would appear that there remains significant scope for GBP/EUR to recover at some point, the question is when.

European Sentiment Continues to Rise

Sterling is having a relatively volatile morning today as Cable is currently trading at 1.5485, after having tested 1.55 earlier, and going on to reach a daily high of 1.5504 before dropping back down. Similarly Sterling has had a wide trading range against the Euro this morning, having dropped to 1.1583 following the release of positive EU economic data, however the pair then rebounded up to a high of 1.1626 before falling back.

German and EU ZEW Survey – Economic Sentiment figures both rose this month, reaching 48.2 and 42.4 respectively. This initially led to a Sterling sell off before the Pound recovered sharply against the Euro, however with these figures having now risen for the past three months we could see sentiment towards GBP/EUR turn back to the downside this afternoon.

Please find a summary of this week’s economic calendar below:
19.02.13
10:00 EU ZEW Survey – Economic Sentiment
10:00 EU ZEW Survey – Economic Sentiment

20.02.13
07:00 German Consumer Price Index
07:00 Producer Price Index
09:30 UK BoE Minutes
09:30 UK Claimant Count Rate
09:30 UK ILO Unemployment Rate
13:30 US Building Permits
13:30 US Producer Price Index
19:00 US FOMC Minutes

21.02.13
07:58 French Markit Manufacturing PMI
07:58 French Markit Services PMI
08:28 German Markit Manufacturing PMI
08:28 German Markit Services PMI
08:58 EU Markit Manufacturing PMI
08:58 EU Markit Services PMI
09:30 UK Public Sector Net Borrowing
13:30 US Consumer Price Index
13:30 US Initial Jobless Claims
13:58 US Markit Manufacturing PMI

22.02.13
07:00 German GDP
09:00 German IFO – Business Climate
09:00 German IFO – Current Assessment
09:00 German IFO – Expectations
10:00 European Commission Releases Economic Growth Forecast

On Your Marks, Get Set, Manipulate

The G20 followed a similar line over the weekend to the one that was adopted by the G7 earlier last week, as finance ministers of the world’s largest economies commented in a joint statement: “We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes”. The fact that the statement was of a rather generic nature, and importantly didn’t specifically refer to Japan, has effectively given Japan the green light to continue its unofficial policy of Yen depreciation, and has potentially opened the door for other countries to follow suit. This lead to the Yen dropping against the Dollar yet again this morning as USD/JPY hit 94.21, nearing the low it reached on February 11th of 94.46, its lowest level in over two and half years.

Some ministers have begun to comment on the potential for ‘currency wars’ in recent weeks as countries actively pursue a weaker currency. However, Japan has reaffirmed today that its monetary easing policies are specifically targeted at ending deflation rather than purposefully trying to devalue the Yen in order to improve the countries global competitiveness, though currency devaluation coincidentally will be an inevitable side effect of such policies. However leading economist, and Nobel Prize winner, Paul Krugman, notes that the currency war issue is “a misconception and it would be a very bad thing if policy makers take it seriously”, and that “the stuff that’s now being called “currency wars” is almost surely a net plus for the world economy”.

Sterling is not fairing any better this morning following the G20 meeting as GBP/EUR is currently trading at 1.1585, having slightly rebounded from a daily low of 1.1562. Similarly Cable has also rebounded from a seven month low of 1.5437 this morning and is currently trading at 1.5470. Whilst the Pounds decline has made imports more expensive over the last month, BoE Monetary Policy Committee member Martin Weale commented last week that the weakening Pound would help improve Britain’s export prospects.

It is Presidents day in the US today, a Public holiday which means trading volumes will be lower and the economic calendar if rather light. However, this afternoon ECB president Mario Draghi will be making a speech. Market participants will be keen to see whether Mr Draghi will make any reference to a potential future interest rate cut. Such a move, which could well happen within the next few months as looser monetary policies have now seemingly been tacitly warranted by the G20, would help Sterling recover some of its recent losses against the common currency.

Mark Webster

Who are EU, Who are EU

Sterling has recovered some of its losses against the Euro this morning following weak GDP data released across Europe. After initially trading flat, GBP/EUR began its ascent following the release of German GDP DATA at 7:00 GMT which confirmed the German economy had contracted by -0.6%. The pair spiked to 1.1590 immediately following the release, before continuing its climb to a daily high of 1.1646. This now puts the pair within sight of a potential target level of 1.1722, a price range where there is substantial resistance.

EU GDP figures were not any prettier either this morning, as the Eurozone recorded a GDP contraction of -0.6% also. This data also helped add further impetus to the Pounds advance against the common currency. The European GDP data hurt the Euro right across the board this morning, with EUR/USD having dropped over a cent in the space of three hours, falling to a daily low of 1.3318.
Attention is now likely to turn to the US session this afternoon where we will see the release of US jobless claims figures. Whilst EUR/USD has been trading consistently downwards this morning, contrastingly we have seen sporadic movements in cable as the pair has been pulled following the economic data from Europe. That said, sentiment towards the pair still remains bearish with 1.5268 remaining a key target level, which should it be tested, could signal a significant downtrend.

Looking ahead to tomorrow, UK Retail Sales figures are due out at 9:30 GMT and are expected to improve from the previous month, potentially aiding the Pound in recouping some of its recent losses. However, make no mistake that the focus tomorrow will well and truly be placed on the G20 meeting, which is set to be a rather contentious affair. The threat of global foreign exchange war is likely to be top of the agenda, with Japans monetary policies likely to feature heavily also. Due to this, Japan may have actually welcomed the data today that showed it remained stuck in recession last quarter, adding to Japanese officials arsenals further ahead of the G20 showdown tomorrow.

Mark Webster