Currency Update – Monday 15th March

Currency Update – Monday 15th March

Risk appetite took another leg up last Friday as good retail sales from the US, and industrial production figures from the Eurozone, managed to reassure the markets that the recovery may not have stalled completely. The figures from the Eurozone showed that industrial production not only grew by 1.7%, but also that the reading for the previous month was incorrect and it was revised upwards from -1.7% to 0.6%. There was also better news regarding Greece with rumours of an imminent release of a bail out package, possibly even today, helping soothe default fears, and everyday that goes by without further bad news helps the markets nerves, as the cost of insuring against a Greek default is slowly coming down. The revision to the Eurozone industrial production figures make the headline growth rate even stronger, 1.7% growth on top of a sector that was already growing faster than thought, and when contrasted with the revisions to the UK GDP, in which the headline figure is revised up, but only because the previous quarter was revised down, making the economy smaller than first though, it is easy to see why the Pound is struggling so much. The Pound did start today up above 1.10, but over the course of the morning it's started to fall back and currently sits under that level.

The Pound has also fallen back against the Dollar this morning, down to around 1.5050, after briefly touching 1.52 overnight. The Pound did rise against the Dollar on Friday as news that retail sales actually grew by 0.3% in February (0.8% if you exclude autos) gave risk appetite a boost, and brought the Dollar lower as investors sought higher returns elsewhere. The Pound will not have been helped by the rightmove house price survey, released overnight, which seems to suggest that any house price rally may well stall given that prices only rose by 0.1% in March, but it seems that is comments from Moody's over the prospects of a rating's downgrade for the UK which have done the damage, in spite of Moody's assertion that the UK is still a long way away from a change in their ratings status.

The rise in risk appetite has also weakened the Yen, allowing the Pound to climb back up above Y136, while the Dollar has pushed up above Y90 against the Japanese currency. The Japanese government have been worried by the strength of the Yen in recent months, and there was some talk of coordinated action to help bring the currency lower. With government intervention already being talked about the chances of further QE measures taken by Japan cannot be ruled out, especially as the Japanese economy is flirting with deflation.

The markets are likely to stay tentative this week ahead of the latest FOMC rate announcement tomorrow evening. the Fed are not going to change rates, although there is likely to be some details of what is planned with some of the monetary and fiscal measures, while it will also be studied to see if there is any hint at future intentions for rates. For today there is not much out of interest in the Eurozone or UK, so attention will turn to the US and they have a manufacturing survey which is likely to show some drop, with the bad weather affecting activity, which may meant that the Pound will find it hard to make any headway throughout today.

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