YB Currency Update – Friday 29th May

YB Currency Update – Friday 29th May

Sterling has dropped back slightly against the Euro yesterday as German unemployment came in better than expected. The headlines pointed to the figure indicating recovery however the numbers do not tell the whole story, they don't accurately count all those who have lost jobs due to the German relatively generous employment laws. With over a million people not working, but not appearing on the unemployment figures, at least not yet, the headlines are likely to be overly optimistic, and looking elsewhere in the German economy, the immanent collapse of the car manufacturer Opel, the floding of the worlds biggest manufacturer of printing presses, and a record clump in new machine orders, the outlook does not look so rosy for Germany and by extension the Eurozone. However the markets preferred to react to the positive headline and while the ECB continue to downplay the downside risks and keep interest rates higher than elsewhere, while eschewing genuine QE measures, the Euro is likely to stay stronger than the underlying data suggests, at least until the ECB change their mind or it becomes obvious that the Eurozone will be recovering at a slower rate than elsewhere.

The Pound has fared better against the Dollar, in spite of some good news for the US with a rating agency confirming their triple A rated credit status, and the latest auction of government debt sold out smoothly. The S&P500 closed up over 1% higher as durable goods orders, and the weekly jobless claims came in less than expected. The continuing good news has led commodity prices higher, with copper rising and oil also up as OPEC confirmed they were leaving production unchanged. The Pound has stepped back up above 1.60 against the Dollar on the back of the continued good data.

The Yen has suffered along with the Dollar, as it not only dips when stock markets rise, but the structural problems in Japan have also eroded some of it's safe haven status. As mentioned yesterday the Pound has been steadily recovering it's huge loss against the Yen in the past weeks and months, but this recovery seems to be gaining momentum with the rate touching Y155 in this mornings trading.

We get the first flash estimate of Eurozone CPI for May, which is likely to show a dip to 0.2% making the ECB's concern over loose monetary policy seem slightly out of date. With little data out for the UK, and the data out of the US unlikely to make much of a splash it seems that the Pound will end the week on a high, especially against the Dollar with the rate continuing to tick higher.

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