Sterling erases some of its gains against the euro

Sterling erased some of the Wednesday’s gains yesterday following a raft of weak economic data released around the world. It was confirmed that the Chinese economy is slowing at its fastest pace on record as the world’s third largest economy is being hit hard by falling consumption, and there was a sharp fall in US housing starts. Negative news being released from such major economies weighed on the pound, despite David Miles – who is replacing David Blanchflower on the MPC in June – suggesting that the worst of the recession may be behind the UK, with there being tentative signs that the Bank of England’s quantitative easing plan may be working. The FTSE 100 also enjoyed a good day, breaking through the 4,000 barrier as it was lifted by banks, following JPMorgan’s first quarter results. Energy stocks also rose following firmer crude oil prices, with a barrel of crude oil trading at around the $53 mark this morning.

However, sterling’s losses were pared as it was confirmed that eurozone industrial output plummeted by a record 18.4% year on year in February, and inflation halved to an all time low in March, underlining the depth of the recession and putting more pressure on the European Central Bank for more monetary easing. Overnight we have also had comments in Tokyo from Jean-Claude Trichet, who stated that the European Central Bank must do everything to restore corporate confidence, with more rate cuts on the cards.

First tier economic data is light on the ground today in both the UK and the eurozone. We do not expect any large moves in GBP/EUR today as sterling’s recent rally looks to cool, with traders taking profits and wary of taking on too much risk ahead of the weekend.

Sterling weakens against the US dollar

The pound weakened against the US dollar by 0.88 cents yesterday, to close at 1.4839 after largely weak economic data saw sentiment weaken as investor’s hopes of an economic recovery were dampened. News that JP Morgan had reported better than expected quarterly profits in the US saw confidence in the global banking system improve, and led to the FTSE 100 making gains of 2.13% by the close of the markets. In fact, the pound’s weakness was largely technical as its inability to post substantial gains above the 1.50 level led investors to take profits. In the US the rate at which housing starts and building permits were falling eased, which pointed to an easing of recessionary pressure on the US housing sector. It was also announced that the number of newly unemployed Americans applying for benefits fell to 610,000, although the number of continuing unemployed on benefits rose to 6.022 million.

In today’s trading the pound has continued to slide ahead of the announcement of the Reuters/Michigan Consumer Sentiment Index in the US as well as a speech from Federal Reserve Chairman Ben Bernanke. There are no major economic announcements in the UK today.

Euro falls to fresh multi-week low against the US dollar

The euro fell to a new multi-week low against the US dollar this morning on speculation that the ECB will cut interest rates further at their next meeting. Speaking at a conference in Tokyo overnight, European Central Bank President Jean-Claude Trichet emphasized the need for price stability. Trichet indicated that it is likely there will be a quarter point interest rate cut, while ECB Governing Council member Axel Weber stated that interest rates should not fall under 1%, and if they do inter-bank lending will be adversely affected. Additionally, there were indications that there may be announcements of quantitative easing measures.

In the US, Federal Reserve Bank of Dallas President Richard W. Fisher spoke at Tsinghua University in Beijing, China to address the global impact of the United State's response to the financial crisis. His view was grim, stating that the "American economy (is) in stasis." Fisher also predicted that unemployment in the US will reach at least 10% by the end of 2009.

In the eurozone Trade Balance figures are due to be released this morning. In the US, the Fed’s Bernanke will be making a speech at 17.45 BST.

New Zealand dollar undermined by raft of weak data

The New Zealand dollar weakened yesterday after a raft of weak economic data dented hopes of an imminent recovery in the global economy. There had been sporadic data over the last few weeks which had investors speculating that the world economy is starting to bottom out. But last night’s data, including a poor Chinese GDP figure, suggested there is still some way to go. This caused investors to revert back to safe havens.

Australian dollar weighed down by disappointing Chinese growth

The Australian dollar remained slightly weaker against sterling yesterday, after a disappointing Chinese Growth report continued to weigh on market sentiment. Data revealed the Chinese economy grew by 6.1 percent in the fourth quarter, just under the forecast figure. However, there had been market speculation that the figure could have been as high as 8 percent, so the smaller figure disappointed markets. Australia is a large exporter of commodities and relies heavily on Chinese demand. The data also did nothing to reassure tentative investors that the global economy is starting to bottom out. The aussie as a high yielder will be one of the worst affected if risk aversion increases.

Sterling enjoys successful day against the euro

The pound enjoyed a successful day against the single currency yesterday, breaching the 1.1300 level for the first time since the beginning of March as investors’ confidence in sterling continued. Sterling was boosted early in trading as the RICS revealed that UK housing market sentiment improved last month, recovering to its strongest level in 13 months during March. The FTSE 100 continued to simmer below the psychological barrier of 4000, as stock markets were a little quiet ahead of the major announcements coming out of the US this week.

The single currency also came under selling pressure after European Central Bank Governing Council member Axel Weber said a package of non-standard measures was set to be unveiled at next month’s policy meeting that will stretch into next year. The European Central Bank is increasingly being viewed as being behind the curve in regards to its monetary policy, with interest rates set to fall further and a foray into quantitative easing on the cards.

There are no first tier economic announcements due in the UK today, with the eurozone releasing their Consumer Price Index and industrial production data this morning. Expect GBP/EUR to follow equity markets closely in the short term, with JPMorgan releasing their first quarter results in the US later today.

Sterling climbs to 3-month high against the US dollar

In Wednesday’s trading the pound strengthened over the US dollar by 1.06 cents to close the day at the 1.4997 level, after data from the Royal Institution of Chartered Surveyors suggested that interest from new home buyers increased in March. Improved sentiment amongst investors, especially with regard to the finance sector, also saw the pound receive a boost. The pound reached a day high of 1.5035 yesterday, which was a 3 month high and the first time it had traded above 1.50 since January 12th. In the US, it was announced that consumer prices fell 0.1% in March, down 0.4% on the year, and marks the first time that the US economy has seen deflation in over half a century. However, once volatile food and energy prices are removed, consumer prices actually stand up 1.8% on the year.

In today’s trading the pound has pared some of its gains as investors have reined in some of their risk appetite. Later today building permits, continuing jobless claims, initial jobless claims, housing starts and the Philadelphia Fed Manufacturing Survey data is released in the US. There are no major economic announcements in the UK today.

Euro trades mixed against the US dollar

The euro traded mixed against the US dollar yesterday, falling sharply in the morning as the market braced for another batch of US data following fresh signs of weakness in the world's largest economy. Market players were looking ahead to US data including consumer prices, housing figures and the Federal Reserve's Beige Book survey of economic conditions, and were hesitant about the data following the release of worse than expected Retail Sales figures on Tuesday. The euro was also undermined by comments from ECB council member Axel Weber, who said the central bank will announce a package of ‘non-standard measures’ in May.

In the afternoon the euro recovered some ground against the US dollar, after the Fed’s Beige Book showed that the US economic contraction continued through early April but the pace of decline was decelerating in 5 of the 12 Federal districts. The Dow Jones rose following this news, improving risk appetite.

The dollar was also pressured a little yesterday by rising gold prices, as strong physical demand from the world's largest bullion market, India, offset worries caused by a surprise drop in US consumer inflation, which could dent the metal's allure as an inflation hedge. Gold is often bought as an alternative investment to the US currency.

However, the euro has weakened against the dollar again this morning in the run up to the release of eurozone Consumer Price Index and Industrial Production figures at 10.00 BST. In the US Jobless Claims figures, housing data and the Philadelphia Fed survey are released this afternoon.

New Zealand undermined by investor caution

The New Zealand dollar lost ground yesterday, as conflicting reports out of the US had investors remain cautious. While there were some positives in the financial sector, economic data has suggested that the world economy may be a long way off from fully recovering. Domestically the economy is still struggling and markets are fully pricing in a further interest rate cut when the Reserve Bank of New Zealand meets at the end of the month.

Australian dollar trades mixed against sterling

The Australian dollar lost ground briefly to sterling yesterday, before recovering after the UK economy received a boost by better UK housing data. Figures revealed that although UK house prices still contracted last month, their decline was the slowest in 12 months. Sales volumes also picked up from record low levels. The Aussie also received support later in the day as equity market gains continued to support the high yielders. Little data is due today so direction will largely come from equity markets and risk appetite.