Sterling approaches a five year high against the US dollar following comments from Carney that the BoE could increase rates sooner rather than later

GBP – With sterling starting the week relatively strong against both the euro and the US dollar, despite the BoE keeping the base rate and asset purchase target unchanged, it was expected that we would see further sterling confidence emerge especially if economic releases remained consistent. This proved to be the case as data out of the UK in the form of industrial and manufacturing production rose both on an annual and monthly basis above the level that the market was expecting evoking a mini sterling rally despite the sector output falling slightly. There was more firm support for sterling as the unemployment rate in the UK slipped to a five year low of 6.6% as employment rose by its largest margin since 1971. Strong data along with BoE Governor Carney’s comments late on Thursday night regarding hiking rates sooner rather than later saw sterling edge past last week’s 18-month high against the euro into the 1.25s and approach a five year high against the US dollar close to the 1.70 level once again. This week should prove to be crucial once again with the release of inflation data in the form of PPI and CPI, retail sales figures and the policy meeting minutes. With inflation remaining the current source of forward guidance for the BoE, we expect the data release to have a large influence on the outcome of the MPC meeting in which the BoE is expected to revise the time frame in which they are likely increase the base interest rate.

USD – The US dollar started the week on a fairly quiet note amid the lack of any fundamental data releases and therefore remained vulnerable to selling pressure with volatility remaining low and US yields also edging marginally lower. Towards the back end of the week we saw the release of retail sales figures which rose by less than the market was anticipating although the previous month’s figure was revised up slightly. The increase was led by sales increases at auto dealerships, building material stores and gasoline stations which rose in line with expectation. Jobless claims also unexpectedly rose on the previous month and this pushed the four-week moving average higher. With employment remaining a key component of the Federal Reserve’s forward guidance, it is likely that they will continue winding down their stimulus package in line with the time frame originally set. On the US dollar downside, there was some disappointing inflation data released in the form of PPI which declined both on a monthly and annual basis. With inflation remaining a threat to US economic recovery it is likely that this will be a topic of discussion at the FOMC meeting later this week. This week also sees the release of more inflation data in the form of CPI followed by the eagerly anticipated FOMC rates meeting and the Federal Reserve Chairman Yellen’s speech.  With the base rate almost certainly expected to remain unchanged, market participants will be looking more towards any further hints with regards to a time frame in which the Federal Reserve could take action.

EUR – There was very little euro support last week following the ECB’s decision to cut rates the week before. Industrial output increased across the region, rebounding with a twice as strong monthly rise in May thanks to energy and non-durable goods production. The data followed the release of strong eurozone retail sales figures and a rebound in German industrial orders.  Every economic release had little direct impact on the region’s currency as market participants remained tentative about the effect of the ECB easing measures on the single currency economy, especially considering the fact that this is the first time that the central bank has introduced negative deposit rates. There was further bad news for the euro as the annual inflation rate weakened substantially in May to 0.5% across the region and in Germany. With deflationary pressure remaining the key concern for the ECB, it appears as though the release of weak CPI figures has somewhat helped justify the central bank’s decision to take action as early as this month. With no influential data releases this week, we expect the euro to remain vulnerable and as a result we could see further losses against both the US dollar and sterling following the release of the monetary policy meeting minutes out of both nations.

AUD – Last week started with RBA Governor Stevens highlighting the need for swift sorting of regulations and banking reforms in order to prevent another financial crisis occurring. Data out of the nation showed that demand for home loans in the nation was flat in April along with business confidence as the economy comes to terms with the recent budgetary changes and shift away from the nation’s dependence on the resources sector following a drop off in commodity prices. Consumer confidence also bounced back from a negative result in May as data out of China continues to remain on the positive side and the ECB’s decision to take action last week is likely to see further euro outflows flood into high yielding economies such as Australia which should aid growth and reassure stability. With very little out of Australia this week we expect external factors to have a bearing on the direction that the currency takes. With violence looming in Iraq we expect there to some degree of impact on a number of commodity linked currencies with the OPEC’s second biggest producer of crude oil plunging deeper into trouble following seizure of the country’s major oil gateway. Only time will tell how big an impact the troubles will have on markets but we should see Australian dollar maintain its strength with the currency appearing more and more like a safe haven asset.

End of Week Forecast:

GBP/EUR – 1.2600

GBP/USD – 1.6980

EUR/USD – 1.3500

GBP/AUD – 1.8120

Kamil Amin
FX Analyst
Caxton FX

Euro quickly corrects following ECB rates cut announcement

GBP – This week proved to be relatively quiet from a sterling perspective with the BoE keeping both the base rate and the asset purchase target unchanged. There was however some speculation that the BoE could raise rates sooner than expected as the manufacturing sector continued to post strong data in the form of PMI figures. The manufacturing sector currently accounts for around 11% of the UK’s total economic output and has expanded in almost every month since March 2013 and this is likely to a large contributing factor in the decision making of the monetary policy committee in the meeting later this month. Despite sterling appreciation over the past few months having made products less competitive globally and dampened the number of new export orders out of the UK, we expect output to build up some steam in Q3 especially as demand increases globally on the back of strengthening economic recovery. This week sees the release of more manufacturing data as well as employment figures out of the UK. If there continues to be signs of improvement and data exceeding the forecasted levels we could see sterling continue posting gains especially against the euro which has very little in the form of support this week.

USD – The US dollar had another steady week with both the ECB and BoE rates meetings failing to deliver anything that wasn’t already priced into the market. Data out of the US remained fairly inconsistent as the trade balance deficit widening in April as imports increased and exports fell again. It is expected that as long as the domestic expenditure areas of the economy continue to provide evidence of a Q2 rebound in growth, the Federal Reserve will stick to its programme of tapering its asset purchases. If and when this ends, we will also be able to gain a better idea of when rates could be hiked as the US economy embarks on some form of an exit strategy to prevent a knee jerk reaction to the lack of added stimulus. One positive out of US last week was the non manufacturing index which rose to a nine month high in May. The increase reflected gains in business activity, new orders and employment components showing signs that recovery in the US is gathering some pace. This week is expected to be a bit quieter with the release of PPI and retail sales data towards the back end. With inflation still remaining a threat to the US economy, the market will be keeping a close on PPI figures and we are likely to see some activity if there is a sizeable percentage change in either direction.

EUR – Data out of the eurozone at the start of the week almost guaranteed that the ECB would take action on Thursday. Inflation data out of Germany and the eurozone as a whole were down below the forecasted level with CPI data showing that the consumer price inflation increased by the smallest amount in more than four years. The ECB’s dovish tone in recent weeks has kept a lid on euro gains over the past few weeks. Following the ECB’s decision to cut the main refinancing rate by 10 basis points to 0.15% and introduce negative deposit rates we saw both the US dollar and sterling spike against the euro for a short period of time before returning to levels prior to the decision as we saw growing sentiment limit further downside pressure on the back of comments from ECB President Draghi that the euro exchange rate wasn’t a policy target and that the region’s economic recovery is a lot more important than the current levels of inflation. With signs emerging that global economic recovery is not as upbeat as originally thought there is further pressure on the eurozone to show more consistent signs of improving to prevent the euro from dropping off too much. Amid the lack of economic releases this week out of the eurozone we expect the euro to remain fairly vulnerable and we could see weakness emerge on the back of strong data from its developed economy peers.

AUD – The past month has seen a lot of changes take place in the Australia as the economy undergoes reconsolidation and borrowing costs remain at historically low levels. Despite signs of weakness emerging, the Australian dollar has remained historically high even though commodity prices have continued weakening further and the RBA decided to keep the base low at historically low levels for at least another month. Before the rates meeting, there was some mixed data out of the country with trade deficit narrowing to its smallest level in two and a half years and the house price index posting its biggest decline in over five years. Bearing this in mind it was unsurprising that the RBA left rates unchanged with uncertainty still surrounding the effect of the budgetary changes, the recent decline in investment in the mining sector which is still contributes significantly to Australian GDP growth and signs that inflation is heating up. The exchange rate has helped keep a lid on inflation and as a result the RBA have remained tight lipped on the issue but the market will be looking at consumer confidence figures and non-resource industry data even more closely before evaluating the direction of the Australian economy and the underlying strength of its currency. With some important data out of both China and Australia this week we could see some resistance broken especially if we see signs of China improving further with Chinese data currently having a more lasting impact on its neighbouring commodity linked currencies than data out of the countries themselves.

End of Week Forecast:

GBP/EUR – 1.2360

GBP/USD – 1.6820

EUR/USD – 1.3600 

GBP/AUD – 1.7970

Kamil Amin
FX Analyst
Caxton FX

US dollar rally ends on the back of weaker than forecasted annualized GDP figures

GBP – It has been a fairly active week from a sterling perspective despite the lack of any fundamental economic releases.  The week started with further sterling outflows as the modest GDP figures continued to price into the market. BoE Governor Carney’s comments midweek regarding the risks which remain in the nation’s financial sector further fuelled speculation that the underlying strength of the UK economy may not be as the strength of sterling might suggest. With signs of the UK’s housing market also stalling, it is likely that the BoE will continue maintaining its current monetary stance for longer than firstly anticipated. If and when we do see a hike in rates it is likely to be very steady with the BoE concerned that a sizeable increase could backfire. This week sees the release of manufacturing PMI data out of the UK as well house price and trade balance figures. These indicators will provide a better indication of how economic recovery is progressing and should provide extra food for thought going into the BoE rates meeting on Thursday. The meeting minutes should provide the market with some added volatility as the BoE forecast their medium term outlook for the economy and the timeframe in which we should expect to see some form of policy tightening.

USD – The US dollar posted healthy gains this week despite starting the week fairly flat. Durable goods data, which is the key gauge of manufacturing data in the US, despite slipping to a four month low was above the forecasted level and saw the US dollar strengthen reaching a six week high against sterling. The latter part of the week saw the release of revised GDP data which showed that the US economy shrank for the first time in 3 years, increasing the case for the Federal Reserve to main record low borrowing costs to stimulate growth. Despite the weak data, the US dollar climbed to a four month high against sterling and a three month high against the euro before correcting towards the end of Thursday. The correction was caused by inconsistent data in the GDP report which showed that consumer spending, job growth, imports and business investment all increased but exports and personal consumption indicator, which is the key inflation indicator, declined. With Key economic releases out of the US next week in the form of PMI manufacturing and trade balance, it will be interesting to see if the US dollar will continue posting gains against its G10 peers if the data comes in above the forecasted level. With more firm support expected from the quote currencies this week as data from May is released and central bank policy makers meet, we are not expected to see the same degree of volatility we saw last week.

EUR –The week started with ECB President Draghi speaking on the back of German GFK consumer confidence data which remained unchanged on March’s figure. He highlighted that with the eurozone experiencing a prolonged period of inflation and weak lending, the ECB would act sooner rather than later with all possible measures of policy loosening feasible. The start of the week also saw some strong showings by anti-EU parties in the European parliamentary elections but it is difficult to know the impact that this has had on the region’s currency with the ECB currently dominating all euro activity. Similarly, weaker than forecasted German retail sales and unemployment numbers, both key economic indicators, appeared to have little direct impact on the currency following their release as the euro stabilised as we approached the end of the week.  With easing expected on the back of the ECB policy meeting this week, we shouldn’t see much activity heading into the meeting with any fundamental data or ECB comments unlikely to cause any significant movement across the euro denominated markets.

AUD – The Australian dollar had a strong week following recent downward pressure on the back of budgetary changes and comments from the Reserve Bank of Australia (RBA) regarding weakening fundamentals in the country. Despite business investment falling for a second straight quarter as the resources industry slows down, spending in the manufacturing sector increased last month suggesting that the Australian economy is starting to reduce its dependency on the mining sector which is due to experience a decline in investment in the medium term. There was also more new good news in the form of the housing sector, which has been viewed by many as the main support to the economy currently, with new home sales increasing 2.9% last month. With more fundamental data out of Australia this week we could see further activity leading up to the important RBA rates meeting in which we expect no development. With the near term outlook of the Australian economy still pointing to a big downturn in fortune, any strong economic releases should see consumer confidence increase and provide another reason for the RBA to maintain their current monetary stance.

End of Week Forecast:

GBP/EUR – 1.2600 

GBP/USD – 1.6770 

EUR/USD – 1.3580 

GBP/AUD – 1.8160 

Kamil Amin
FX Analyst
Caxton FX

Strong Inflation and Retail Sales figures are overshadowed by UK GDP increasing in line with expectation and widening government deficit.

GBP – Sterling continued to dominate most of the market movement throughout the week as fundamental economic releases and the BoE Monetary Policy meeting minutes took centre stage. The start of the week was dominated by BoE Governor Carney’s comments regarding the booming UK housing market and how it remained a threat to economic recovery due to its structural problems and the increase in high value loans. This was overshadowed by better than forecasted inflation data (1.8%) which edged closer to the BoE target level (2.0%), highly improved retail sales figures and also increasing signs of hawkish sentiment amongst some BoE Monetary Policy committee members, which fuelled speculation that growth had picked up sizeably on the previous quarter causing sterling to rally against most of its global peers. The rally was however cut short by GDP data from the UK coming in as forecasted, despite the market having priced in an increase and both exports (1.0%) and imports (1.1%) having slipped on the back of sterling appreciation. With no major economic releases this week, we expect sterling to continue on an upward trend against its major peers as long as there is nothing out of the ordinary.

USD – The US dollar started the week trading range bound amid lack of economic releases and following Fed Chairman Yellen’s comments that the US still had a long way to go in order to achieve a sustainable economy. The eagerly anticipated Fed FOMC minutes on Wednesday also failed to deliver any unexpected activity as the central bank confirmed that they would continue tapering their stimulus programme whilst policymakers discussed an exit strategy and further pushed back the likelihood of a hike in rates to the latter parts of next year. The end of the week saw the US dollar strengthen against its major counterparts following promising US housing and manufacturing data both of which were highlighted as threats to the nation’s economic recovery. This week sees the release of more fundamental data out of the US in the form of Durable Goods Orders and CB Consumer Confidence at the start of the week followed by GDP and more Jobless Claims data towards the end of the week. With employment and manufacturing data being two of three key economic indicators in the US currently with regards to forward guidance, we could see some activity if the figures are above the forecasted level as this will continue building pressure on the Federal Reserve with regards to setting a timeframe in which a hike in the base could occur.

EUR – The euro started the weak on a downward curve as weak GDP figures from the eurozone’s core economies continued to price into the market. This further increased speculation that the ECB would take some form of monetary action as early as June whether it be lowering interest rates, introducing negative deposit rates or quantitative easing. With inflation indicators coming in as forecasted and risk of deflation fading slightly, the ECB definitely has time to weigh up different potential options before pulling the trigger. With Draghi speaking at various economic conferences this week, the market will look for further signs of weak economic recovery as the likelihood of monetary loosening sooner rather than later continues to price in. Data out of the eurozone’s strongest economy, Germany, is likely to dominate any market movement once again with employment and consumer confidence figures released midweek.

AUD – The Australian dollar came under pressure at the start of the week as S&P fuelled speculation that the nation’s top notch ratings remained under pressure and the RBA declared that they expected rates to remain at historically low levels for some time. It is also expected that growth in the upcoming quarters is likely to fall behind the trend as exports slow down, investment in the mining sector declines and the government embarks on fiscal consolidation. With the recently released budget signalling spending cuts and a tax hike, there is now added pressure on policymakers as the Australian public takes caution. The Australian dollar did however receive some much needed support towards the end of the week as better than forecasted Chinese PMI data priced into commodity currency markets. This week should continue to be tentative with the Australian dollar remaining range bound against the US dollar and sterling as the market eagerly anticipates next week’s decisive economic releases which will provide a clear indication of the effect of the budgetary changes made by the nation’s government and whether it falls in line with the dovish comments made by the RBA.

End of Week Forecast:

GBP/EUR – 1.2355

GBP/USD – 1.6855

EUR/USD – 1.3670

GBP/AUD – 1.8160

Kamil Amin
FX Analyst
Caxton FX

A week of mixed data leaves Cable stalled in the 1.68’s, the Bank of England’s inflation report underlines the positives of the economic recovery but leaves room for improvement.

A stern warning from Mark Carney in a televised interview this last Sunday has emphasized the focus of the Bank of England on tackling the price increase in UK housing. “When we look at domestic risk, the biggest risk to financial stability and therefore to the durability of the expansion, those risks centre in the housing market and that’s why we are focused on that”. The focus was on the possibility of the Financial Policy Committee taking action at their June meeting to reduce the inflation of housing prices by reducing the Help to Buy programme which offers mortgage guarantees to borrowers with small deposits. This Help to Buy programme launched by the government was criticized by economists because it fuelled demand rather than tackling inadequate supply.

UK – The Bank of England released their quarterly inflation report last Wednesday in which they emphasized that interest rates need to stay low for a significant period of time, as an interest rate hike would be a last resort for dealing with the concern of rising housing prices. Carney taking a dovish tone during this meeting undermined the pound, and has helped keep an upward limit on the GBP/EUR and GBP/USD rates. Out of the UK this week, we will have the CPI y/y on Tuesday, votes on the MPC Asset Purchase Facility and the Official Bank Rate as well as retail sales on Wednesday, and a second estimate GDP q/q on Thursday. Positive data this week out of the UK could help to boost the pound across the board, as the pound has had a pullback in the last two weeks or so.

EUR – The Euro has suffered in the wake of the last ECB meeting, as the market is steadily pricing in potential ECB market intervention action at their June meeting. In the last two weeks, EUR/USD has fallen a percent and a half as the Dollar has had a rebound and the euro has suffered. Data from the Eurozone this week to watch out for will be French and German Flash Manufacturing PMI on Thursday and German Ifo Business Climate on Friday. European parliamentary elections will also take place this next Sunday, in which voters from 28 European Union countries will elect 751 members to the European Parliament. Elections can create volatility with a currency, and European Polls show that anti-EU extremist parties from the left as well as the right are expected to gain support as well as parties from Greece and Spain that are opposed to the current EU leadership.

USD – The USD has been holding its current levels and even improved against many currencies, as the Dollar Index is relatively flat from a week ago. The US economic outlook is improved after a disastrous first quarter GDP where there was barely any growth as a result of a harsh North American winter earlier this year. Analysts expect the FOMC meeting minutes on Wednesday evening to reflect the sentiment that the US recovery is underway, but any dovish sentiment from Janet Yellen could further derail the currency. Other US data this week will be Unemployment Claims and Existing Home sales on Thursday and New Home Sales on Friday.

End of Week Forecast:

GBP/EUR – 1.2175 

GBP/USD – 1.6750 

EUR/USD – 1.3650

GBP/AUD – 1.80

Nicholas Ebisch

Corporate Account Manager

Caxton FX

ECB defers action most likely until the next meeting, Cable is stopped at 1.70 but remains elevated.

UK – The United Kingdom performed well over the last week, as Services PMI came in positively on Tuesday, the Bank of England kept the Asset Purchase Facility and the Official Bank Rate the same on Thursday, and Manufacturing Production m/m came in positively on Friday. The positive economic outlook has supported the pound against most currencies in the last week or so, but depending on the data this week, we could see further gains. The relevant data this week will be Mark Carney holding a press conference on Wednesday, followed by a Bank of England Inflation Report. This will provide the BoE’s projection for economic growth and inflation over the next 2 years. Aside from this data, there will not be any major data releases, so the strength of the pound will largely be determined by market trends and speculation until the press conference on Wednesday.

EUR – The European Central bank decided to keep rates on hold for the moment, which provided a momentary spike of strength for the Euro, until Mario Draghi made a comment at the end of the press conference which strongly hinted at ECB action at its June meeting. His comment was that “the governing council is comfortable with acting next time”. This helped to restore confidence in Draghi’s pledge from June 2012 to do “whatever it takes” to save the Eurozone. However, this undermined the value of the Euro, which dropped around a percent against the Pound and the Dollar. The Euro has started the week out on the back foot, and with little data on the week to change this momentum against the Euro, we could see further losses. The only high-impact event coming out of the Eurozone this week will include German ZEW Economic Sentiment on Tuesday. Aside from this, we expect the rate this week to be driven very much by market sentiment.

USD – In the past week, the dollar index has made a significant gain of around one percent due to some positive data over the last week. There has been a reversal of the downward trend of dollar devaluation since the middle of April, as short positions are beginning to unwind and market sentiment is helping to reverse the losses that the dollar suffered. Data from the US this week could help to support the dollar, as it is forecast to come in more positively. The data will start with Core Retail Sales m/m and Retail Sales m/m on Tuesday, PPI m/m on Wednesday, Core CPI m/m, Unemployment Claims, and the Philly Fed manufacturing Index on Thursday, and finally, Building Permits data and Preliminary University of Michigan Consumer Sentiment data on Friday. With this busy week of US data, we could see the dollar go either way, but the dollar is on the front foot for now.

AUD – The Australian dollar gained against sterling and most other currencies last week, as there was much action from the Australian Central bank. The market has speculated that the RBA will soon cut interest rates, but the central bank kept interest rates at 2.50% at the last meeting, lending strength to the AUD. The Unemployment rate also dropped last Thursday in Australia, and the Monetary Policy report came out suggesting a more hawkish tone than expected, that indicators of the economic outlook are “consistent with the pace of growth”. This was a big week for the Australian dollar and it comes into this week with momentum in its favour.

End of week forecast:

GBP/EUR – 1.2275

GBP/USD – 1.68

EUR/USD – 1.37

GBP/AUD – 1.7980

Nicholas Ebisch

Corporate Account Manager

Caxton FX

Cable has peaked out at 1.69, at what seems to be a very high level, but that’s what analysts were saying at 1.61. Eurozone inflation is still the main concern, and with an ECB meeting this next week, we may see some action with the euro.

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

Weekly Analysis - Sterling holds strong, Euro proves resilient, but the US and Australian Dollars fall. This week will be heavy with US and UK data and should be relatively volatile. Sterling has the momentum, but positive US data could well reverse those gains.

GBP – In the UK, The last week brought relatively good news for the pound. The Bank of England meeting minutes revealed a positive revised growth estimate for the UK on Wednesday, and Retail Sales m/m figures on Friday beat estimates with at least a small sign of growth. The pound has held up against most other currencies and has the momentum to push higher next week. Data to watch for this week from the UK will be the Prelim GDP q/q on Tuesday, Manufacturing PMI on Thursday, and Construction PMI on Friday.

EUR – In the Eurozone, Manufacturing data from last week and an improved PMI figure confirmed that business activity has increased overall. However, with inflation at such low levels, the Eurozone is increasingly concerned with a stronger Euro, which would further destabilize growth. Data is limited this week, but with a CPI Flash Estimate y/y figure on Wednesday, there will be a more complete picture of how prices have increased when compared to economic growth in the region.

USD – Last week, the Dollar provided some resistance to the advancing pound and Euro with positive durable goods orders last Thursday, but much will depend on the preliminary US GDP figure this coming week. This week, the all-important day will be Wednesday, as markets prepare to digest the ADP Non-Farm Employment Change, Advance GDP q/q data on Wednesday out of the US, and the FOMC will make a statement at 7pm GMT. The FOMC is also scheduled to reduce its bond buying by another $10 billion down to $45 billion this week, and with a relatively stable market, it will be easy for the Fed to proceed with this. Also, let’s not forget Thursday, as Janet Yellen will be speaking at a policy summit meeting in Washington D.C.

Canada – Canadian data will also be heavy this week, as the loonie has proved that it has had some forward momentum with positive Core Retail Sales m/m last week. BOC Governor Poloz is speaking this week on Tuesday and Wednesday will bring Canadian GDP m/m figures. The Bank of Canada has been under increasing pressure to lower their benchmark interest rate of 1% since growth has been slower than expected in the past year and the Canadian Dollar has been sliding as a result. 

Australia – Last week, the Australian Dollar was weakened significantly when Australian CPI q/q and the HSBC Flash Manufacturing PMI both came in negatively and undermined the AUD. This week, we could see a similar phenomenon, as there will be CNY Manufacturing PMI on Thursday, expected to improve marginally from a month ago. Also, there will be Australian PPI q/q expected to improve from the last quarter. The Australian dollar has been strengthening from its 2013 devaluation slide, but it seems to have stalled with poor Australian and Chinese data. This week will be an additional focal point to determine the direction of this rate.

End of week forecast

GBP/EUR – 1.2200

GBP/USD – 1.6900

EUR/USD – 1.3930

GBP/AUD – 1.8200

Nicholas Ebisch

Corporate Account Manager

Caxton FX

Weekly Market Analysis - UK Economic figures drive GBP to gains against most currency pairings, whilst the eurozone takes a more dovish tone following the World Bank and IMF meetings last weekend.

GBP
The UK unemployment rate dropped to a five-year low of 6.9% on Wednesday
which reinforced positive Manufacturing data from a week earlier. GBP/USD rose
to the highest level since 2009 in what is a clear sign of economic confidence
developing in the UK economy. This has put more pressure on the Bank of
England at their next meeting to at least discuss an interest rate rise. However,
there is not a distinct timeline for a rate increase at the moment, as the Bank of
England altered their forward guidance framework last fall to look more broadly
at economic indicators before committing to a more definite timeline. Next week,
the major events on the economic calendar are the MPC Asset Purchase Facility
Votes and MPC Official Bank Rate Votes on Wednesday, followed by the Retail
Sales m/m figures on Friday.

EUR
Mario Draghi stated in New York this last weekend after the IMF and World
Bank meetings that further strengthening of the euro would require additional
ECB intervention because of the low level of inflation in the eurozone. The
international community has overwhelmingly expressed their concern to Draghi
about the low rate of growth in the eurozone and that measures need to be
taken to boost economic growth in the region. Any instability or sign of an
economic decline in the eurozone would have negative ramifications for global
markets because of the eurozone’s central role within the global economy.
Mario Draghi has stated that if further action is taken, it will be an interest rate
cut which precedes further quantitative easing. Draghi is due to speak at a
conference in Amsterdam on Thursday and may provide more clues as to the
further action that the ECB has planned.

USD
The dollar’s performance was weakened over the last week largely thanks
to Janet Yellen making a distinction about the likelihood of an interest rate
rise. During a speech last week, the Federal Reserve chairwoman included
in her comments that there will be a ‘considerable time’ between the end
of Quantitative Easing and the first interest rate rise. This undermined her
comments from the Federal Reserve meeting on March 19th where she said that
an interest rate rise may follow as early as six months after the end of the QE
Programme. The more dovish tone from Yellen has given the Federal Reserve
more breathing room as the Fed continues to voice their concerns about the
sluggish economic recovery, rather than the need for a higher interest rate.

End of Week forecast –

GBP/EUR – 1.2250

GBP/USD – 1.6890

EUR/USD – 1.3770

GBP/AUD – 1.7900

Nicholas Ebisch
Corporate Account Manager
Caxton FX

Chinese economic growth slows, UK unemployment rate falls to a five-year low

Chinese GDP q/y figures beat estimates, but have continued to slow from where they were a year ago. Global equity markets are up on the day because the 7.4% q/y growth out of China beat analysts’ estimates. Forecasters estimated that the Chinese economic data would come in at around 7.3%, as the economy has slowed from a year earlier, but a surprise to the upside is a welcome relief for global markets concerned about the slowing growth of China. Industrial production ytd/y and Fixed Asset Investment ytd/y slowed, but retail sales y/y accelerated in the past year. China’s current GDP growth is very high when compared to most countries in the world, but it pales in comparison to the double-digit GDP growth that it enjoyed for years. Analysts and planners maintain that the world’s most populous country needs to sustain high levels of growth because of the high number of migrant workers and young population entering the job market. This puts pressure on Beijing to strategically invest in more government stimulus to stop the slide of GDP growth.

In the United Kingdom, the unemployment rate fell to 6.9% during the last month. This is the lowest the unemployment rate has been since April 2009. The UK economy continues to surprise on the upside, as the economy looks to be doing very well and ticking back to life. Sterling received a boost against most major currencies this morning when the data was released. The Bank of England announced last year that the threshold for considering an interest rate increase would be 7.0%, however they are unlikely to rush into any definite timeline. As the unemployment rate fell more quickly than expected last autumn, the Bank of England modified their forward-guidance strategy, saying that they will now consider a broader range of economic indicators to assess the overall strength of the economy when deciding whether or not to raise interest rates. Although this does step up the pressure on the Bank of England, it is unlikely that this alone will advance the timeline for an interest rate increase.

Nicholas Ebisch

Corporate Account Manager

Caxton FX