15th March 2010
Daily outlook
Sterling faced heavy selling pressure for most of last week as the political and economic stability of Britain remained uncertain. Sterling slumped to 11 month lows against a basket of currencies as industrial output and trade balance figures came in below forecast. As well as this, the continuing lack of a clear majority lead in recent election polls has allowed sterling to face heavy selling pressure, although some respite was allowed on Friday as polls did begin to suggest that the Conservatives would look to gain a majority in the May elections.
More political instability within the euro zone has allowed the single currency to be weighed down especially against the US dollar, as uncertainty into Greece’s fiscal health has kept trade into the euro fairly thin. With the EU due to meet today to finalise a bail out package for the troubled state, the single currency could look to receive a boost.
Lastly markets are hotly anticipating the FOMC meeting tomorrow to outline fiscal policy making to support the US economy as it continues to make strong economic recovery. Recent positive data has allowed investors to hope that the Fed will look to raise interest rates sooner than their recent statements for an ‘extended period’.
The US has further data due out for release today, TICS figures, Industrial production data and NAHB housing start figures will all be looked upon for clues to the direction of policy making in tomorrow’s session. In the euro zone markets see the release of Employment figures whilst no data due for release in the UK will see investors trade on sentiment erring on the cautious side.
- Euro Zone
Employment Figures
- United States
TICS data
Industrial Production
NAHB Housing Starts
NY Fed Manufacturing index
Currencies outlook
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Sterling
Sterling continued to decline in last week’s session, slumping to 11 month lows against a basket of currencies as fears surrounding the outlook for the UK economy remained strong. With political uncertainties, abysmal public finance figures and a succession of downbeat data, sterling remained vulnerable to heavy selling pressure. Fears surrounding the possibility of a hung parliament, and the effect that this would have on policy making in the midst of arguably the worst recession to hit Britain in half a century, continued to make sterling an unattractive prospect to investors. As well as this Industrial output figures fell to their lowest level in 5 months, trade deficit figures rose to their highest levels in 17 months and Moody’s rating agency acted to further weigh on sterling by suggesting that similar to that of Portugal and Spain, Britain’s sovereign debt rating is more vulnerable to a downgrading than ever before. Some respite was allowed in Friday’s session, especially against a weakened US dollar, following an opinion poll suggesting the conservatives will look to gain a majority in the up coming elections, temporally alleviating fears of the prospect of a hung parliament. Sterling will remain vulnerable into this week’s session with claimant count figures, public borrowing data and the release of minutes from this month’s BoE meeting all leaving sterling exposed to further selling pressure in a market which sees the home currency in the midst of such overriding negative sentiment.
US Dollar
A quiet week in the US saw the greenback trade largely on sentiment shifts and equity market movements. After falling overnight, the US dollar pared some of its losses on Friday following unexpectedly high US retail sales figures, rising to 0.3% against a forecast of -0.2%. The greenback rose off the back of this news, by supporting the belief that the already strong US economic recovery is continuing to remain stable. Unfortunately this confidence was somewhat short lived, as the University of Michigan consumer sentiment survey eased to 72.5 in March, from last months release of 73.6. With the FOMC due to meet tomorrow the US dollar lost strength approaching Friday’s close following this more negative data. Investors were anticipating the possibility of the removal of the continuing references to the FOMC’s “extended period” of low interest rates, and hope they will look to announce a more set plan for the reversal of the ultra loose monetary policy enacted in the worst of the global recession. Until such an announcement is made, trade into the greenback will remain uncertain.
Euro
Developments in Greece remained at the forefront of investors mind’s into last week, as Greece’s PM Papandreou was seen courting the media to gain support for Greece’s austerity measures and campaign for stricter rules governing speculative trade. This campaign for confidence was somewhat undermined by Moody’s and Fitch’s rating agencies highlighted Spain, Portugal and Greece’s continuing vulnerability to a sovereign downgrading. Markets saw a mixed bag of economic data, with German trade figures depressing markets, whilst the euro zone sentix survey surprised markets by improving over expectations. The euro zone has a strong line up of events this week, with the release of the ZEW investor sentiment survey, HCIP and trade figures and today’s release of employment figures, but more than anything, developments in the euro zone will come from developments in Greece. Despite strong objections from Germany (among others), the 16 euro zone member states are due to meet today to finalise the rescue package rumoured to amount to as much as 25bln euros, which should act to support the single currency.
Japanese Yen
Mixed sentiment saw the Japanese yen oscillate between safe haven strength and heavy selling pressure bred from speculation surrounding the immanency of the Bank of Japan market intervention. Whilst weak Japanese machinery orders, strong Chinese growth and inflation data and year-end reparation flows all helped lift the safe haven yen; continuing speculation into the BoJ’s readiness to intervene into currency markets has kept investors cautious into ploughing into the yen whilst such uncertainty remains. With the BoJ due to meet this week to discuss how best to tackle declining exports, speculation into the level of market intervention will remain high and could look to curtail the yen’s strength.