Foreign Exchange - UK Daily Update - Wednesday, March 31, 2010 7:53 - 0 Comments
- Q4 comes in at 0.4% against 0.3% consensus
- House prices rise albeit on low volume
- German growth prospects downgraded by IMF
- Market still unwilling to see Greece as anything but risky
Pound leapt to a one month high against the euro, over the 1.51 level against the US dollar and higher against most G10 and EM currencies as data showed that the UK exited recession like a bat out of hell.
Well maybe not that well but 0.4% is not to be sniffed at. The key is whether now that quantitative easing has ended this growth can continue. The preliminary estimate for Q1 is in late April.
Sterling shot higher on the news leading to a new found sense of optimism for the pound in dealing rooms. There are a good few things that could be contributing to this.
As we know the market in general has been bearish on the pound over the past few months and have been ‘shorting’ it i.e. Betting that it will fall. However we believe that we may see some of these bets be cancelled or ‘covered’ before month end and before Friday’s Non-Farm release. This equates to people buying the pound and therefore the pound rises. We also expect that we are coming up to the ISA deadline (April 5th, fact fans) and that therefore we will see a lot of unit trust and tracker fund buying in equity and debt markets over the coming week as investors try not to miss out on their tax-free allowance.
With sterling benefiting from those stronger growth figures it would have been just our luck for the EU to pull something good out of the bag and nix any upward movement. Luckily for the pound however they were unable to do this. Fears over Greece and Germany and rumours surrounding France all helped the euro lower across the board.
Uncertainty over Greece is back and still surrounds that yield of 5.9%, According to news reports they are looking to issue a 20 year bond; this would cause investors to ask for a punchier yield coupon, something that the Greeks can’t really agree to. If however a debt auction fails then all the good will that surrounded the single currency post-bailout would disappear.
The fears over Germany were more and came from the International Monetary Fund. It has cut its forecasts for growth in 2010 and 2011 and characterised the recovery as ‘fragile’. They also mentioned ‘downside risks for exports and credit’ and weakness in the German banking system. We had expected a downgrade for 2010 after Germany’s disastrous growth standstill in Q1 of this year but nothing for 2011.
AUD has weakened overnight as Retail Sales and Building Approvals for February were a lot worse than expected. AUDUSD fell from 0.92 to 0.9150 on the announcement and has continued lower whilst GBPAUD has jumped into the high 1.64s. The market hasn’t changed its mind over the hike next week however as it looks like Governor Stevens’ comments are being viewed as more important.
Economic news to watch today includes German Unemployment at 09.00 and EU Consumer Confidence at 10.00. We have the ADP jobs report at 13.15 and will hopefully show a positive figure for Non-Farms to follow on Friday.
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