Global Equity markets have rallied and are approaching
record highs yet again going into this week with positive sentiment coming from
a slightly improved Eurozone inflation figure, positive non-farm payrolls and
the US unemployment rate coming down, Dovish tones from the US Federal Reserve,
and the UK economy on a roll with consistently positive economic data. These
factors have managed to largely override the uncertainty that is affecting
Ukraine and many currency pairings have benefited from the positive data, but
the dollar continues to struggle.
UK – Sterling has performed very well in the previous week.
The GDP figure came in just below target, but still positive at 0.8% q/q, and
manufacturing data was positive on Thursday. The UK economic recovery is
gaining momentum, but concern has been expressed by Bank of England
policymakers that the rapid recovery of the housing market could be another
housing bubble in the making. The data
to watch for this week will be the Official Bank Rate and Asset Purchase
Facility, and Manufacturing Production m/m. Things are looking up for the
Pound, and there seems to be very little chance that this trend will be
reversed.
US – The US recorded a new record low unemployment rate this
month at 6.3%, down from 6.7% last month. Also, the US non-farm employment
change figures came in very strongly, signalling a recovery in the US labour
force. This has helped the Dollar improve against most currencies, as the
Dollar suffered earlier in the week with a dismal advance GDP q/q figure this
last Tuesday, which was down to 0.1% from 2.6% previously. This week, important
US data will include Yellen testifying before the Joint Economic Committee of
Congress on Wednesday, and US unemployment claims data on Thursday. With mixed
data this week, the dollar is looking for a direction to commit to, and next
week’s data may help determine its direction more soundly.
EUR – Analysts are forecasting that the ECB most likely will
defer action. Speculation has built before every ECB meeting that action will be taken, in the form of
further interest rate cuts or a new structure for Quantitative Easing, but so
far the latest change was last November when there was a surprise interest rate
cut. Inflation has picked up in April, but only marginally, from 0.5 to 0.7
percent. The market has begun the week with momentum behind the Euro as
analysts are prediction that the ECB will defer possible action this time, and
shift market expectation until the June meeting. Other data has been coming in
on target, but Eurozone economic growth is still well below policymakers’
expectations. Only time will tell what the ECB has in store, and we will find
out for sure this week on Thursday.
End of week forecasts
GBP/EUR – 1.2125
GBP/USD – 1.70
EUR/USD – 1.3950
GBP/AUD – 1.8150
Nicholas Ebisch
Corporate Account Manager
Caxton FX
