The relative lack of data yesterday left the currency markets at the mercy of equities, and like in previous days, when the Pound fell along with global stocks, it has kept it's relationship and has rallied along with equities. The S&P500 rose 1%, reversing the downward trend of the past few days, in spite of the weekly jobless figures in the US coming in worse than expected. The employment figures were ignored as the general trend in the rate of the fall is still downwards. The rising equity markets dragged the Pound a little higher, over 1.52 in this morning's trading.
The Euro was left stagnant as Eurozone officials seem divided over the extent of the recession, and what should be done about it, which is of course the primary problem of a multi-state currency. A few days ago two ECB members publicly disagreed over the prospects for QE measures, while yesterday an ECB official contradicted a Dutch minister, who though the markets shouldn't be too optimistic about 'green shoots', by saying that he thought the recovery may come sooner than many expect. Although the Euro stayed steady, the rise if the Pound managed to push the GBP/EUR rate back above 1.12 this morning, and today's German GDP figures could help push that rally much further.
The rise in the stock markets has also benefitted the AUD, which has climbed higher, back above 0.76 against the Dollar, and has taken the Pound back down below 2.01. The AUD will continue to get support as their interest rates are higher than other developed nations and the pick up in China continues to inflate commodity prices, however the correction in the S&P500 over the last few days was only 5%, when many think a fall of double that is need, and further stock market falls could hurt the AUD, although the Pound will not be invulnerable either.
With no UK data out today, the Pound will be led by events over in Germany and in the US. This morning we get German GDP figures, these were expected to be poor, with the forecast of a 3% dip, beaten by a 3.8% fall. Eurozone GDP later today is also likely to fall further than expected, and could keep the Euro on the defensive throughout today. This afternoon we have a manufacturing survey, as well as industrial production figures, and consumer confidence all out of the US. The expectations are for the data to show a slowdown in the rate of decline, and if this proves to be the case, then the improved risk appetite could well leave the Pound ending the week on the front foot.
Michael Corcoran | Treasury Solutions Partner | Wholesale Banking | NAB