Edward Knox, FX Analyst
We have already witnessed a flurry of activity in the euro zone this morning with the release of Flash Services and Manufacturing PMI data from the euro zones two power houses France and Germany. The releases, although not catastrophic, came in below market expectation and have the ability to undermine confidence in the single currency today. Elsewhere the UK Retail Sales figure was released (09:30). The figure disappointed coming in at -0.5%. As the first serious economic release from the UK all week traders have used it as a signal to sell sterling. US Unemployment Claims follow this at 13:30 and will provide further insight into the strength of the US economy. A good result here will play into the hands of dollar bulls expecting an interest rate hike in the States.
GBP/EUR: Currently trading at 1.4025
The pound strengthened yesterday, reaching 1.40 for the first time since mid-March, and has maintained that strength into the morning session. Yesterday’s MPC meeting notes were slightly hawkish on inflation and interest rates. Eurozone data released so far today, including Manufacturing PMI, has been weaker than expected. However, disappointing UK retail sales have seen the euro gain against sterling.
With no new data expected this afternoon, the markets will continue to react to this morning’s data and yesterday’s BOE minutes, and look towards tomorrow’s Eurogroup meetings in Riga for the next step in the Greece saga.
GBP/USD: Currently trading at 1.4981
Yesterday was a good day for cable, which broke the 1.50 mark as sterling strengthened after the release of BOE meeting minutes indicated the next change in interest rates may be an increase. The pound’s strength coupled with a weakening dollar in light of the ECB extending emergency liquidity assistance to Greek banks. The greenback has recovered some ground this morning in light of weak UK retail sales.
This afternoon, the US will release Unemployment Claims and New Home Sales data, both expected to increase but less than in the previous month, and Flash Manufacturing PMI, forecasted to decrease from previous to 55.6, so we may see volatility in the pairing.
EUR/USD: Currently trading at 1.0702
The euro momentarily hit 1.08 yesterday, before weakening again throughout the course of the afternoon. Further woes greeted the euro this morning, with French and German Flash manufacturing PMI figures and Spanish unemployment data all disappointing, putting further pressure on the shared currency in anticipation of tomorrow’s important Eurogroup meetings.
Later on in the afternoon sees weekly US unemployment claims and new home sales figures, which may cause a stir in the pairing if the readings don’t come in as forecast. However, we expect to see euro weakness for most of the day as tomorrow’s Eurogroup meetings weigh in on the pairing.
GBP/AUD: Currently trading at 1.9368
Yesterday saw the pound regain its recent losses following the release of the Bank of England’s latest policy meeting minutes yesterday morning. Comments suggested that the board expect inflation to rebound faster than expected and therefore the next rate move is likely to be an increase. This news sent the rate into an upwards trend that continued throughout the course of the day, peaking at 1.9420.
We expect to see some added volatility today following the release of weaker-than-forecast UK retail sales. This has seen the upward trend halted.
GBP/NZD: Currently trading at 1.9796
The pound continued to climb against the Kiwi yesterday as the upbeat Bank of England comments emerged, suggesting that a rate hike could be on the horizon. This news saw the rate surpass the 1.97 mark. The kiwi took another hit late last night following the dovish comments of RBNZ Governor Mcdermott, which revealed that an increase in interest rates is not being considered at present.
Combined with Gov Mcdermott’s comments, the drop in UK retail sales this morning could provide a much needed let off for the dollar.
GBP/CAD: Currently trading at 1.8360
The pound strengthened against its counterparts yesterday after the Bank of England released its minutes showing members had voted to keep interest rates at a record low. Investors used yesterday’s conversation minutes to build a better understanding regarding policy before the up and coming election.
Today’s key driver is UK Retail Sales Figures, which saw a decrease in sales from previous. This could put pressure on the pound and provide the loonie with support.
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