Currency Update – Wednesday 5th May

Currency Update – Wednesday 5th May

The currency markets are still struggling to find a reason to back the Euro following the weekend's latest EU bailout measures. Continued contagion fears are denting market confidence, with investors still concerned that the debt crisis will spread to other European countries. Widespead strikes in Greece against tough austerity measures have also left many uneasy about how the situation is going to unfold. In the aftermath of the Spain & Portugal downgrade last week, the Spanish prime minister was even moved to quell rumours that his own government may ask for a EUR 280Bn bailout as the Spanish markets fell 5.4% on talk that the country would call for an emergency loan. Banking shares there and further afield have all taken large hits in recent days as contagion fears abound. With such a multitude of negative indicators, the Euro is certainly at one of it's most defensive states since it's inception. EUR/USD is it's lowest for over a year at 1.2950, whilst GBP/EUR is at it's highest since last July, at 1.1680.

Sterling failed to find much support from yesterday's stronger than expected rise in the manufacturing PMI index for April, the data offset by weak bank lending for March. With the single currency commanding so much attention it is almost as if Sterling has reached a relative hiatus in anticipation of tomorrow's election. With poll indications bouncing from hung parliament to wafer thin majority, and from one story in absolute vote share figures to another from the resultant seat projections, as we close in on May 6th markets almost seem consigned to the uncertainy, and a late night on thursday as the swingometer is reassembled. The latest round of polls show a narrowing between the parties taking the UK into ‘Hung Parliament’ territory, and using conventional calculations, the current split would leave the Conservatives as the largest party , though with 273 seats, this is certainly a minority or even coalition government. With the constantly peddled cliches of 'every vote counting' beginning to ring truer and truer, it is perhaps no surprise that the campaigning by party leaders isn't even stopping for sleep now.

This afternoon sees the release of some key data in the US which could provide some welcome distraction. The ADP employment report for April should provide a good indication of what Friday's non-farm payroll report will be like. The European Commission is also due to release it's latest economic forecasts today.

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