The pound weakened slightly against the euro yesterday as more positive news from the eurozone increased investor appetite for the single currency. A report released by the European Commission yesterday showed improved economic sentiment in the region, as the index rose from 64.7 points in March to 67.2 this month, much better than the 65.2 points analysts had predicted. Moreover, European equity markets rose following solid first-quarter profits of £2.26 billion from Royal Dutch Shell and £1.9 billion from Spanish banking giant Santander, which further improved appetite for the single currency as investors speculated that the a tentative economic recovery in the eurozone may be underway.
However, the euro’s gains were capped yesterday as better-than-expected retail sales data released by the CBI on Tuesday improved investor sentiment that the UK may be coming out of recession. In addition, news of strong demand at a UK gilt auction earlier this week, the first since UK Chancellor Alistair Darling announced a record high £220 billion issuance for the coming fiscal year in the budget last week, buoyed investor mood. Finally, speculation surrounding what measures the European Central Bank intends to implement at their next policy meeting hampered the euro’s gains, as investors in the eurozone speculated that the bank could announce a quantitative easing program similar to the one that appears to be working in the US. Indeed, the US Fed last night voted to leave their stimulus measures unchanged, sighting tentative “green shoots” in the global economy, therefore making it increasingly likely the ECB will follow suit to get the region out of recession. As a result, continued speculation over what the bank will decide, together with positive economic data released on both sides of the English Channel, capped the single currency’s gains against sterling, although it still finished the day up at 1.1122.
There are a couple of pieces of important economic data out in the eurozone and UK today. In the eurozone March’s Unemployment Rate is released at 10.00 BST, whilst in the UK Year-on-Year Nationwide House Prices data for March is due today.
Thursday 30 April 2009
Pound strengthens against the US dollar on improved risk appetite
The pound strengthened against the dollar yesterday as risk aversion eased following a two-day flight to safety because of swine flu. Although the first death from the virus outside Mexico was confirmed yesterday morning, better-than-expected CBI retail sales data and solid demand at a UK gilt auction, both announced on Tuesday, eased investor worries that an economic recovery may yet be some way off. The auction of UK gilts was the first since UK Chancellor Alistair Darling’s budget announced last week, in which he announced a record issuance of £220 billion for the coming fiscal year. Also driving sterling’s gains yesterday morning was surprisingly positive consumer confidence and home price data released in the US on Tuesday, again adding to improved market sentiment and extending sterling’s gains in the morning.
However, far worse-than-expected US GDP data released at lunchtime clawed back some of sterling’s early gains. It revealed an annualised contraction in the US economy of 6.1% for the first three months of 2009, far worse than the 4.9% analysts had predicted. A 30% fall in exports was the primary driver behind the contraction, the biggest decline for 40 years, as the global recession reduced worldwide spending. The figure also represented the third consecutive quarter of contraction of the US economy, the first time there has been three in a row since 1975. Nevertheless, despite sterling losing some of its early gains, it remained in positive territory, buoyed by the strong performance of equity markets. The FTSE 100 finished the day up 93.9 points at 4189.59. Throughout the day, continued speculation over what measures the Fed would announce following their policy meeting slightly affected the market, although most analysts agreed that no major new initiatives would be announced. As it turned out, they were right, as the central bank kept interest rates on hold at virtually zero and continued as planned with its quantitative easing program, citing some tentative signs of economic recovery and strong equity market performance as the basis for their decision. The decision served only to further strengthen the pound’s position against the greenback, as investors speculated that there could be light at the end of the tunnel. Sterling finished the day at $1.4764.
In early trading today sterling has continued its rise against the greenback, as investors continue to take positive news from the Fed’s interest rate decision. There are lots of important announcements out today in both the US and the UK. In the former, the Month-on-Month and Year-on-Year Core Personal Consumer Expenditure Prices Index is out at 13.30 BST, as is March’s Personal Spending and Personal Consumption Expenditure Deflator data. Finally, at 14.45 BST, the Chicago Purchasing Managers’ Index for April is released. In the UK, Year-on-Year Nationwide House Prices data for March is due today.
However, far worse-than-expected US GDP data released at lunchtime clawed back some of sterling’s early gains. It revealed an annualised contraction in the US economy of 6.1% for the first three months of 2009, far worse than the 4.9% analysts had predicted. A 30% fall in exports was the primary driver behind the contraction, the biggest decline for 40 years, as the global recession reduced worldwide spending. The figure also represented the third consecutive quarter of contraction of the US economy, the first time there has been three in a row since 1975. Nevertheless, despite sterling losing some of its early gains, it remained in positive territory, buoyed by the strong performance of equity markets. The FTSE 100 finished the day up 93.9 points at 4189.59. Throughout the day, continued speculation over what measures the Fed would announce following their policy meeting slightly affected the market, although most analysts agreed that no major new initiatives would be announced. As it turned out, they were right, as the central bank kept interest rates on hold at virtually zero and continued as planned with its quantitative easing program, citing some tentative signs of economic recovery and strong equity market performance as the basis for their decision. The decision served only to further strengthen the pound’s position against the greenback, as investors speculated that there could be light at the end of the tunnel. Sterling finished the day at $1.4764.
In early trading today sterling has continued its rise against the greenback, as investors continue to take positive news from the Fed’s interest rate decision. There are lots of important announcements out today in both the US and the UK. In the former, the Month-on-Month and Year-on-Year Core Personal Consumer Expenditure Prices Index is out at 13.30 BST, as is March’s Personal Spending and Personal Consumption Expenditure Deflator data. Finally, at 14.45 BST, the Chicago Purchasing Managers’ Index for April is released. In the UK, Year-on-Year Nationwide House Prices data for March is due today.
Euro strengthens on improved risk appetite
The euro strengthened against the dollar yesterday, as risk appetite returned to markets following two days of investor flight to safe-haven currencies. Although much worse-than-expected annualised US GDP figures for the first three months for 2009 capped some of the single currency’s gains early in the afternoon, the euro remained strong throughout the day to finish the day up at $1.3271. Led by the biggest fall in US export demand in 40 years, a staggering 30%, the US economy contracted by 6.1% in the first quarter of this year. Nevertheless, appetite for the perceived riskier currencies remained in the market, buoyed by better-than-expected consumer confidence and house price data released in the US on Tuesday. The euro’s gains were also aided by an encouraging survey released by the European Commission, which showed that economic sentiment in the region improved to 67.2 points in April from 64.7 in March, much higher than the 65.2 points analysts had predicted.
Investor appetite for the riskier euro came despite news of the first death outside of Mexico from swine flu and also reports of more suspected cases around the world. After two days of swine-flu related falls, European equity markets rose yesterday as positive economic data, together with a feeling that there may have been an overreaction to the swine flu outbreak, eased investors’ nerves, further extending the euro’s gains against the greenback. In addition, speculation surrounding what the Fed would announce last night following their two-day monetary policy meeting affected markets, although, as expected, the US central bank kept their interest rate on hold at virtually zero and promised to continue with their purchasing of long-term government debt to expand the money supply as planned – a process known as quantitative easing. Investors took this news positively, concluding that the central bank’s current policies must be tentatively getting the US economy out of recession, and therefore they continued to buy into the euro yesterday evening.
In early trading today the euro has continued its rise against the greenback, as risk appetite improved. However, there are some big announcements in both the eurozone and America today which could move the market. In the US, March’s Personal Spending and Personal Consumption Expenditure Deflator data is released at 13.30 BST, as is the Month-on-Month and Year-on-Year Core Personal Consumer Expenditure Prices Index. In addition, at 14.45 BST, April’s Chicago Purchasing Managers’ Index is out. In the eurozone, the Unemployment Rate for March is released by the European Monetary Union at 10.00 BST.
Investor appetite for the riskier euro came despite news of the first death outside of Mexico from swine flu and also reports of more suspected cases around the world. After two days of swine-flu related falls, European equity markets rose yesterday as positive economic data, together with a feeling that there may have been an overreaction to the swine flu outbreak, eased investors’ nerves, further extending the euro’s gains against the greenback. In addition, speculation surrounding what the Fed would announce last night following their two-day monetary policy meeting affected markets, although, as expected, the US central bank kept their interest rate on hold at virtually zero and promised to continue with their purchasing of long-term government debt to expand the money supply as planned – a process known as quantitative easing. Investors took this news positively, concluding that the central bank’s current policies must be tentatively getting the US economy out of recession, and therefore they continued to buy into the euro yesterday evening.
In early trading today the euro has continued its rise against the greenback, as risk appetite improved. However, there are some big announcements in both the eurozone and America today which could move the market. In the US, March’s Personal Spending and Personal Consumption Expenditure Deflator data is released at 13.30 BST, as is the Month-on-Month and Year-on-Year Core Personal Consumer Expenditure Prices Index. In addition, at 14.45 BST, April’s Chicago Purchasing Managers’ Index is out. In the eurozone, the Unemployment Rate for March is released by the European Monetary Union at 10.00 BST.
New Zealand dollar weakens after rate cut
The New Zealand dollar weakened against the pound overnight and fell to a 7 week low against the aussie, after the Reserve Bank of New Zealand cut interest rates by 50 basis points, to a historic low of 2.5 percent. The central bank indicated in its statement that it would keep rates low until 2010 to help fight the country's deep recession. With expectations that Australian interest rates are nearing their bottom, the aussie yield attraction is now becoming much more attractive than the kiwi's. This essentially means foreign investors looking for riskier assets may start to defer to the aussie instead of the kiwi.
Australian dollar strengthens to 12-year high against the pound
The Australian dollar gained back ground against sterling yesterday, climbing to a 12-year high as a more optimistic tone in markets triggered greater demand for riskier assets. This was largely driven by the US central bank indicating the economic outlook was slightly better, coupled with signs of improved performances from banks. This was supported by strong results from Spanish banking giant Santander, which also owns a number of UK based banks including Abbey. The aussie also gained further support from improving metal prices, as fears have for now subsided over the impact of Swine flu. However, this may still come back into the equation if the pandemic starts to worsen dramatically.
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