Pound:
The pound rallied significantly against the Euro yesterday (well over 1%) smashing through the 1.12 area towards 1.1250, in addition to making significant gains against the USD, reaching a high of 1.5126 by yesterday afternoon. The UK economy grew by 0.4% in the last three months of 2009 above the 0.3% forecasts and in separate data the UK current account deficit (number of exports vs imports) narrowed sharply in positive signs for UK exports. However eyes are still firmly fixed on the UK political situation with many investors uncertain on the outcome of the general election, helping to curb any further gains.
In more political news the Telegraph reported that Gordon Brown could continue as Prime Minister for weeks even if he loses the election (under Whitehall proposals) and there is a hung parliament in order to prevent a collapse in sterling and a major fall in UK confidence. Bring on the election…
US Dollar:
One remaining doubt in the US recovery has always been the unemployment figure. Whilst stocks were rising as well as Federal Reserve rate rises, unemployment remained high, consequently playing on the minds of investors and thus putting a slight cap on dollar gains. However, poor labour market figures are starting to shrink as the most recent data suggests that U.S. companies added 40,000 jobs this month, the most since December 2007. The Labour Department’s nonfarm jobs report on April 2 is forecast to show employers added 184,000 positions, the most in three years.
The main push for the dollar came from the Asian markets on speculation that Japanese institutional investors may buy a lot of dollar-denominated assets at the start of the new fiscal year Thursday due to strengthening U.S. interest rates. Dollar strength looks to have the stamina for the long term as rising rates are fuelling demand for U.S. assets, in turn boosting demand for the Greenback. Dollar movement is occurring mainly with Asian currencies, thus far USD/EUR trading has been thin with little change overnight as well as this week in general.
This morning sees the euro open marginally higher than the dollar at $1.3431 up 0.15%. Sterling saw a great rally and continues this morning albeit slightly subdued, currently up on the dollar 0.18% at $1.5094. Once again trading ranges seem to be the order of the day for the time being with neither USD, EUR or GBP testing major support or resistance lines.
Euro:
The Euro ended last week and begin this week up on most currencies as reassuring data from the E.U. summit suggested that, finally, something concrete had been established in reference to the Greek crisis. However, such is the nature of sentiment and the markets in general that all this hard work was undone relatively quickly as the euro lost more than 0.5% vs the dollar on Tuesday after Standard & Poor’s warned that Greece’s banking system remains at risk due to the country’s weak economic outlook. To make matters worse Ireland announced its plans to inject billions of euros into the banking system as it remains fragile with any signs of a recovery a distant wish for the time being. As we have commented on previously, demand for sovereign debt will be a key marker on euro sentiment and strength. As it stands, demand is waning for Greek bonds after a recent bond sale failed to attract the same interest as previous sales, “any tremors in European sovereign debt send folks scurrying to the dollar,” said Joseph Trevisani, chief market analyst at FX Solutions. Not that this matters as the Hadron Collider is about to be fired up and, according to some, will essentially cause a black hole in Europe which has to be a violation of human rights at the very least.
Quote of the Day
“O for a life of sensations rather than of thoughts!” – John Keats