Currency Update – Wednesday 16th June

5 days into the World Cup and we have finally seen one of the favourites, and with the relatively flat nature of most of the games so far, some Brazilian swagger was much needed, not that Brazil got it all their own way as the Democrat Peoples Republic of Korea put up a good fight, and if you live in North Korea the fight will probably be even more impressive as the highlights are likely to turn a 2-1 loss into a 1-0 win. We get a look at another of the favourites today with Spain taking their turn, and although their football team need no further confidence boosts, their economy did and it received one yesterday as Spain, along with Irelands, latest bond issuance was fully taken up by the market. This has given the Euro a lift, and the single currency was further helped along by comments from the Fitch rating agency who said that the markets have overreacted to the Eurozone debt problems, and ‘A lot of problems in Greece are specific to Greece.’ The better news on debt allowed the markets to shrug off some less than stellar data out from the German ZEW survey, as well as the ECB announcing a 5% haircut on their buying of Greek bonds, and the Euro has managed to climb above 1.23 above USD, as well as forcing the Pound down to below 1.20.

Although the Pound may have slipped against the Euro, it has performed reasonably well against the Dollar, benefiting from the easing or Eurozone debt worries and the rise in risk appetite. The general thawing of fears even allowed the markets to ignore some of the mixed data out of the US, as while the US manufacturing index showed a decent expansion, the housing market index suffered a sharp fall. The general rise in the markets allowed the Pound to push up above 1.48 overnight, although it has fallen back to sit around 1.4750 this morning.

One of the reasons for the Pound losing some of it’s gains this morning is the sharp fall in consumer confidence overnight, which although the detail does show the present situation and the expectations indices falling back, the spending component held up quite well, which isn’t such bad news for the prospects of retail business. We also had some good news from the CPI measure yesterday, which did come in a little lower at 3.4%, still way above target, but it is a little better than last month’s, and makes the nightmare prospect of having to raise rates, while at the same time suffering low growth, and large spending cuts, a little more remote.

It’s a busy day for data with CPI for the Eurozone, likely to be at a comfortable 1.6%, and the Producer price index in the US is also expected to moderate as lower oil prices start to feed through. In the UK the data schedule is dominated by the employment data this morning, which has shown the claimant count falling more than expected, giving the Pound a little boost. Chancellor Osbourne also gives his first Mansion House speech today, and although he is likely to save most of the details of any changes to next weeks budget, he may announce some of the previously proposed regulatory changes to the FSA, giving the powers back to the BoE.