Currency Update – Friday 4th June

Currency Update – Friday 4th June

The economic data was on the whole disappointing yesterday, although equity markets still managed to keep hold of their recent gains. In Europe there were further sings of the problems facing the main Eurozone nations with retail sales falling 1.5% in April, while there was also hints of the contagion of the debt crisis spreading not just the West to Spain and Portugal, but also to the East. Hungary looks to be falling into the same position as Greece, with the European Commission President saying that Hungary is in a 'very delicate position', and Hungary is not alone with Romania failing to fill a bond auction. The news has brought the Euro lower, down to below 1.22 against the Dollar, with key support around 1.2130, a level which if broken could see the Euro really hurt. The Pound has managed to make some headway against the single currency, but not much, just about touching 1.20 this morning.

Over in the US the ADP employment report came in slightly disappointing at 55k more jobs created, less than the 70k expected, there was also some middling data showing same store retail sales growing at a modest pace. The S&P500 finished slightly higher, and the Dollar moved higher which had the effect of pushing the Pound down back to around 1.4650. The ADP report was largely discounted as today's non farm payroll figure is expected to come in extremely high anyway, mostly due to the decennial census and the large amounts of temporary hiring. This will swell the figures today massively, possibly by more than 400k, and will make reading the underlying state of the employment situation in the US harder.

In the UK the news has understandably been focused on matters away from the markets, but the service sector data out yesterday showed a steady state of growth, and coupled with the manufacturing sector report staying at 15 year highs on Tuesday, the chances of a double dip recession now seem more remote. One big factor in the prospects for growth in the UK will be the budget later this month. The Labour party spent the whole campaign warning that spending cuts would harm the recovery, and their ideas will soon be tested as the budget is expected to deliver some very harsh cuts. The markets will welcome what the cuts will mean for the UK's fiscal responsibility, but if GDP once again turns negative the government may struggle to justify it to the populace.

The non-farm payrolls will dominate the markets today, although as already stated the figures will be harder to read due to the considerable noise added by the hiring for the census poll. The markets are still likely to react to a big figure, although any moves may not last very long. This morning we have just got the Eurozone GDP revision, which has confirmed the pace of growth is at a very sluggish 0.2%. The Pound has managed to keep it's gains against the Euro, to hover around 1.20, and it has started to rise slightly against the Dollar, if this afternoons US jobs figures come in higher than expected, then we could see the Pound back up above 1.47 against the Dollar today.

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