YB Currency Update – Monday 11th May
The optimistic run of data continued last week, and received a boost at the end with the US non-farm payrolls coming in Friday afternoon with a smaller fall than expected. Of course the usual caveat has to be added that the numbers still showed over 500k less jobs than the previous month, but with expectations for losses of over 600k, the markets still reacted positively. US stocks rose rapidly late Friday, and, as per usual, the lessened risk aversion sent the Dollar lower as investors sought higher returns elsewhere. The Pound managed to climb above 1.52 and the euro raced to above 1.36 against the Dollar, although both have fallen back someway in this morning’s trading.
The UK news has been dominated by the steady dripping of politicians expense claims by The Telegraph, and as the details come out of MP’s abusing the system by claiming their family home as a 2nd home, and using public money to renovate then sell houses, the refrain from the MPs has been to call in the police to find out who leaked the info, and the repeatedly bleat that all expenses were ‘within the rules’. However the way Fred Goodwin got his large pension was also within the rules, but it didn’t stop the rabble rousers whipping up a frenzy over the unfairness of it all. Bankers in general kept within the rules, but the BoE still had to announce another GBP50bn of QE measures to try to stimulate the economy on Thursday, and it was this announcement which has prevented the Pound from continuing it’s rally on the back of higher stock levels. The Aussie Dollar has had no such qualms and has rallied strongly against the Dollar, and even more so against the Pound, making the Pound worth less than 1.98 Australian Dollars.
The Pound may have stayed buoyant against the falling Dollar, but it has dropped against the Euro as the ECB disappointed the markets with their QE measures. The markets were waiting for a rate cut, which they duly got, down to 1%, but there was also speculation that with weak data coming out of the Eurozone and inflation figures falling, that the ECB may embark on their own QE measures, and they did, to an extent, but the corporate bond measures they announced were not as drastic as the markets thought, and the Euro rallied on the news, dragging the Pound down to around 1.11 against the single currency.
The UK data is clumped towards the front end of this week with the first being the BRC consumer confidence guide released overnight. This showed a fall from the last reading, however the last reading was six months ago, and has led the Pound slightly lower. There is also the BRC monitor of retail sales, taken every month rather than every six, and industrial production data released tomorrow, while Wednesday also contains the inflation report. It may take some time for the Pound to recover from the BoE announcement next week, and the data released over the next few days is unlikely to help.