The Euro recovered some of its losses against the Dollar and Sterling yesterday with slightly better than expected PMI Manufacturing Data. There are some signs that the strong expansion seen in Germany is now about to level off, however, with Service sector PMI declining slightly in April. The Euro also strengthened due to better than expected corporate results that led to rallies in the Stock Markets as an appetite for risk returned.
Perhaps the biggest risk to Euro strength will emerge from the Spanish bond auction today. A significant increase in Yields may put downward pressure on the Euro as it will weaken the perception that Spain has decoupled itself from Portugal, Ireland and Greece, as stated by the IMF only last week. If, on the other hand, the auction is successful, we might see the Euro continue to rally through to the end of the week. Interestingly reading today the longer term expectations for GBP/EUR vary widely, the two extreme expectations are 1.09 and 1.25 so expect plenty of volatility for the pair as they continue to search for direction.
Today sees the release of the Monetary Policy Committee (MPC) minutes from the April meeting which will be looked at for any indication of increased support for hiking interest rates in May. However, the mixed news and data releases in the first quarter, together with the downside surprise to inflation, make it very unlikely that there will be any divergence from the loose monetary policy seen to date. If there are any hawkish comments or changes to the voting patterns we can expect to see extreme Sterling strength as this would be completely unexpected.
The other data release today in the UK is Public Sector net borrowing. Markets will be looking for Sterling to strengthen if this comes in below expectations of 19.4 billion, as it shows the markets that UK austerity measures are working and that the chancellor may have some spare reserves to help kick start the UK economy.
Posted in Daily Market News on May 30 2014
Yesterday saw sovereign debt return to the market, in both the Euro zone and the US. The S&P revised its long-term outlook on US debt from stable to negative citing, the lack of a plan in addressing the very large budget deficit means that the US is in a significantly...VIEW FULL ARTICLE
Posted in Daily Market News on Apr 19 2011 by alex