Currency Update – Friday 17th April
France was one of the main drivers of the European Union, however it seems that if the union’s rules don’t suit sections of their population, they are certainly not backword in coming forward. No-one throws up a blockade like the French, after the French fisherman blockaded the channel reports, as they didn’t like the fishing quota, the port workers were going to blockade the channel tunnel in solidarity. This has now all been sorted out, after a payout from the French government, but it is a reminder that even the main drivers of greater European integration find it hard to carry their whole populace with them, and things may get harder for the French government as the Eurozone economy slips deeper into recession.
Yesterday Eurozone industrial production figures fell a further 2.3%, from the previous month, and new car sales were down 9%. The Eurozone CPI figures also fell, taking the yearly rate of inflation to 0.6%, far below the ECBs 2% target. The ECB have a hard balancing act to perform with many different economies using the Euro, they have to be seen as taking every economy into account, and it is the disparate nature of the Eurozone economies, and of their governments, which is likely to stop the Euro taking over the role of the Dollar as the world’s premier reserve currency. However the Euro is still strong at the moment, in spite of the weak economic data, Sitting around 1.31 against the Dollar, and keeping the Pounds recent gains to just above 1.13. The Euro is the last major currency to begin QE, and when the ECB decide to go down that track, which they are likely to do at some point, despite their sanguine attitude over the prospects of deflation, the Euro could begin to slide rapidly.
The Pound has lost some of it’s gains against the Dollar, dropping back to around 1.48 overnight, after hitting a high over 1.5050 the previous night. The Dollar benefitted as some bad global economic data, the European data was on the heels of Chinese GDP growth falling to 6.1%, below the 8% the Chinese government says it needs for social stability, brought global sentiment down. However the gloom was tempered by an optimistic outlook by the Chinese government over the prospects in the coming months, coupled with some better than expected US data, and more good reporting from the banking sector, which has kept the equity markets relatively buoyant.
It’s a quiet day to end a quiet week on the data front for Sterling, and the lack of data is likely to leave Sterling hanging. It will gain some support against the Euro as comments from Trichet that the ECB would ‘do everything possible to boost confidence.’, was widely interpreted as another 25bp cut in May, although he did seem to distance the ECB from QE measures, once again expressing doubt as to the exit strategy for such a strategy. The focus this afternoon will be on the US Michigan consumer confidence survey, this is expected to rally on the back of stock prices, and the continuing softness of oil prices, providing some good news to end the short week.