The Pound declined against the Dollar and the Euro yesterday in spite of a rather positive unemployment report. The reason for traders’ concern was the Bank of England’s quarterly inflation report which forecast slower growth and higher inflation for longer and which didn’t rule out further quantitative easing. However, despite the dip, Sterling didn’t completely capitulate and it is clear there is an underlying support for the Pound as a safe haven away from the threat of Euro melt down.

The Dollar made gains against the Pound and the Euro as investors are gripped by tithe fear of a worsening situation in Greece and the impact of that nation’s implosion on the future of the euro zone.

The latest minutes of the Federal Open Market Committee ‘s April 24-25 meeting showed that a number of policymakers believe that additional monetary policy easing could be necessary if the economic recovery loses momentum or the downside risks become greater.

US equity markets have dropped for the fourth consecutive day as the crisis in Europe continues to overshadow better than expected US economic data releases. An initial rise in markets as US housing starts and industrial production exceeded forecasts in April could not be sustained.
Housing starts rose by 2.6% while industrial production gained 1.1%, indicating that the US economy is withstanding the negative impact of the European debt crisis.

The Euro made slight gains against the Pound while declining against the Dollar.

The European Central Bank announced that it would temporarily stop lending to number Greek banks to limit its risk as the political deadlock continues after politicians failed to form a government.

Two ECB officials stated that the central bank has no immediate plans for further stimulus while ECB President Mario Draghi conceded that Greece could leave the euro and indicated that policy makers will not be bending on their key principles to prevent an exit.

Data released 17.05.2012

US: 13.30 Weekly Jobless Claims (w/e 12th May) 367,000 365,000

US: 15.00 Philly Fed Index (May) 8.5 11.0

US: 15.00 Leading Indicators (April)

“March’s UK trade figures showed a bit of an improvement, although the external sector still looks likely to have dragged on GDP growth in the first quarter overall,” said Vicky Redwood, chief UK economist at Capital Economics.

“The breakdown of the figures suggests that the Eurozone crisis is taking its toll,” she said. “The rise in exports was driven by a 12% jump in exports to outside the EU; export values to the EU were flat.”

“The deepening of the Eurozone crisis in recent days suggests that the near-term export outlook remains pretty poor, especially given the further rise in the pound.”

The Dollar made gains against the Dollar and the Euro yesterday benefiting from its safe haven status.

Inflation in the U.S. stagnated in April, restrained by a decline in energy costs. The core consumer price index, which excludes food and energy costs, rose 0.2 per cent, showed Bureau of Labour Statistics data on Tuesday.

“There’s a lot of slack in the economy,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida.

Inflation is “sort of at the sweet spot as far as the Fed is concerned. The recovery is on track but it’s not especially strong.”

Also Tuesday, the Commerce Department said retail sales in the U.S. grew by less than expected in April. Sales edged higher by 0.1 per cent from March, when they rose a revised 0.7 per cent, down from a prior estimate of 0.8 per cent.

The Euro declined against the Dollar while remaining relatively unchanged against the Pound yesterday.

The news of a better than expected GDP report from the Eurozone for Q1 had only a brief impact on the euro with markets quickly returning their attention to the Greek political situation. The news that the country will hold a second round of elections in June as talks to form a coalition have broken down are weighing heavily on the Euro.

Germany did help the Eurozone avoid its second recession in three years. Overall gross domestic product stagnated in the first three months of 2012, compared to the previous quarter, Eurostat data showed on Tuesday.

“Germany is holding up the rest of the euro zone,” said Nick Kounis, head of macroeconomic research at ABN Amro in Amsterdam.

“While it will remain the outperformer, I doubt this will happen again in the second quarter,” he said, adding that for the euro area “the second quarter is likely to be negative.”

“Germany is leading the bloc, but this doesn’t mean we will have a strong rebound. Austerity is not going away and southern European economies are really struggling,” said Mads Koefoed, a senior economist at Saxo Bank.

Data released 16.05.2012

UK      09.30 Claimant Count (April)

ILO Unemployment Rate (March)

UK      09.30 Average Earnings (3 Mths to March)

Ex Bonuses

EU      10.00 Final HICP (April)

UK      10.30 BoE Publishes Quarterly Inflation Report

US      13.30 Housing Starts (April)

Permits

US      14.15 Industrial Production (April)

Capacity Utilisation

“I can’t see even after the next Greek election a government appearing that will be able to do anything else than perhaps manage the Greek exit,” said Simon Sole, chief executive officer of Exclusive Analysis Ltd.

The Dollar declined against the Pound while making gains against the Euro yesterday Markets remained defensive on rising concerns Greece may leave the Eurozone.

The Euro declined heavily against the Dollar and the Pound yesterday as events in Greece continue to put the euro under pressure.

New elections in Greece are now looking highly likely after the leader of the radical left party declined to join talks with pro bailout parties which are scheduled for today. News from Germany is also adding to the euro’s negative tone with a crushing defeat over the weekend for Chancellor Angela Merkel’s conservative party in elections in North Rhine-Westphalia, the country’s most populous state.

Also to note Industrial production in the Eurozone contracted unexpectedly in March, Eurostat data showed on Monday. Production fell 0.3 per cent from February, when it rose 0.8 per cent.

“Industrial production is a timely reminder that first-quarter GDP will likely show a contraction,” said Martin van Vliet, an economist at ING. “With the fiscal squeeze unlikely to ease soon and the debt crisis flaring up again, any upturn in industrial activity later this year will likely be modest.”

Data released 15.05.2012

UK      09.30 Trade Balance (March)

Non EU Trade Balance

EU      10.00 Flash GDP (Q1)

US      13.30 CPI (April)

Core CPI

US      13.30 Retail Sales (April)

Core Retail Sales

US      13.30 Empire State/NY Fed Mfg Index (May)

US      14.00 Net Capital Inflows (March)

US      15.00 Business Inventories (March)

US      15.00 NAHB House Builders’ Sentiment (May)

The Dollar declined against the Pound and the Euro as investors breathed a collective, albeit momentary; sigh of relief regarding Greece, and US economic data registered better than expected. After last week’s disappointing reading of nonfarm payrolls, this week’s first-time claims was much anticipated.

The number of American’s filing for unemployment benefits dropped to 367k, just beating the forecast of 368k. However, the recovery in the labour market remains frustratingly slow with a recent poll showing that more than half of Americans that graduated from college since 2006 are not employed full time.

Of those fortunate enough to have secured full employment, 50% are in jobs that do not require a college education. As such, economists are increasingly expectant of a third round of quantitative easing before the end of the year.

A report yesterday showed that import price gains declined to just 0.5% on an annualized basis, down from 3.6% in the previous reading. The market will take note of whether those lower prices carry over at both the producer and consumer level, which would give the Fed ample room to ease policy further. Finally, the trade deficit widened by more than anticipated, coming in at -$51.8B versus -$45.4B in the previous reading as the gain in imports nearly outpaced the rise in exports two to one.

The Euro made gains against the dollar while remaining relativity unchanged against the Pound as Greece received its next tranche of bailout funds from the EFSF. While Greece’s political landscape remains uncertain, the nation’s financial needs are covered, at least for the time being. However, the underlying risks of a Greek default are keeping investors on edge, especially after German ECB member Axel Weber told reporters that there was still a “very real risk of a Greek default.” He went on to say that Spain’s current struggles with rising debt yields and an economy in contraction carry an “extremely high contagion risk for Italy.” In light of the on-going concerns, a recent Bloomberg poll showed that 57% of investors believe at least one Eurozone nation will leave the currency bloc by the end of 2012.

Data released 10.05.2012

UK      09.30 PPI – Output (April)

Input

EU      10.00 European Commission Spring Forecasts

US      13.30 PPI (April)

Core PPI

US      14.55 Michigan Sentiment Survey (May – Prel)

Also to note the latest RICS house price balance report revealed that the rebound in the residential property market has run out of steam. The report also indicated that London was the only part of the UK where prices rose, albeit at the slowest rate since the mid-point of last year. A RICS spokesman has said economic concerns and a lack of availability of mortgage finance were the primary influences on the housing market.

The Dollar made gains against the Euro and the Pound yesterday benefiting from the increase in risk evasion.

“In the near-term, pound-dollar may be heading back towards $1.60. There will be more focus on U.S. performance in the second half of the year.” - Danske Bank A/S (based on Bloomberg)

The Euro declined against the Pound and the Dollar yesterday sticking close to 3-month lows seen earlier in the week as markets remain on edge following election results in France and Greece. Sentiment was not helped by comments from the leader of Greece’s Left Coalition party who said that the country’s commitment to the EU/IMF rescue deal had become null and void. A number of European leaders, however, have been quoted overnight as saying that there will be no changes to negotiated deals.

Data released 09.05.2012

No Significant data

U.K. manufacturing sector expanded less than forecast in April, the Markit/CIPS purchasing managers’ index showed on Tuesday. The index declined to 50.5 down from 51.9 in March. Reading above 50.0 indicates industry expansion.

“The good news is that manufacturing clocked up a fifth straight rise, whilst cost pressures have eased a little and some firms are still recruiting,” said Lee Hopley, chief economist at EEF, the manufacturers’ organisation.

“The bad is that ever-present eurozone woes are still bearing down on the short term outlook, with some suggestion of renewed downward pressure on export orders over the past month.”

Howard Archer, chief UK economist at IHS Global Insight, said the survey was: “Disappointing and an early blow to hopes that the economy will return to growth in the second quarter, especially as the extra day’s public holiday resulting from the Queen’s Diamond Jubilee will hold back overall economic activity during the quarter.”

The Dollar made gains against the Euro and the Pound as the dollar found support following strong manufacturing data which also lifted greenback ahead of the ADP report that is expected to show U.S. companies added more workers during April.

The positive data again dimmed expectations for more Fed easing for now, after U.S. manufacturing grew in April at the strongest pace in 10 months, easing concerns the economy has lost momentum with the start of the second quarter, supporting the demand for the dollar until Friday’s jobs report that will either support the gains or cut the gains short.

The Euro  made gains against the Pound while declining against the Dollar as inflation in the euro zone rose by more than expected in April, mounting pressure on the European Central Bank to take action against price pressures. Consumer prices increased 2.6 per cent from the same period last year, said the European statistical office on Monday.

“Stubborn inflation will only add to household’s financial problems in the nearer term and supports the view that the Eurozone economy will fall deeper into recession,” said Ben May, European economist at Capital Economics in London.

“The likelihood of inflation falling below 2 percent in the short run remains low, putting the ECB in a difficult situation,” Peter Vanden Houte, an economist at ING, said.

“As the German members of the ECB’s governing council have been warning of inflationary pressures potentially building up, a further rate cut seems out of the question.”

Data released 02.05.2012

UK: 09.30 Consumer Credit/ Mortgage Approvals (March)

UK: 09.30 Construction PMI (April)

EU: 10.00 Unemployment (March)

US: 13.15 ADP Employment Report (April)

US: 15.00 Factory Orders (March)

The Dollars decline against the Euro and the Pound following disappointing economic data prompts investors to increase bets that the Fed may soon ease monetary policy. US Q1 GDP fell short of expectations, showing that the economy expanded at a 2.2% annualized pace in the first three months of the year. Forecasts had been for a reading of 2.5%, both of which are down from 2011’s Q4 3.0% growth rate. However, while the GDP numbers are troublingly low, personal consumption gained more than expected, rising to 2.9% versus 2.1% in the previous reading.

The Fed kept policy on hold at their meeting earlier last week, but the accompanying commentary was far more dovish than investors had expected with Chairman Bernanke suggesting that the FOMC was “prepared to do more” if necessary. In light of the recent data, those additional actions may mean that the Fed will take actions to ease policy further in the coming months. Meanwhile, Michigan confidence came in better than expected, rising to 76.4 versus the flat reading of 75.7 that was anticipated.

The Euro declined slightly against the Pound while gaining against the Dollar on Friday.  The common currency initially fell against all of its major counterparts after S&P surprised the market late Thursday by downgrading Spain sovereign debt rating to BBB+, three notches above junk status. Moreover, Spanish unemployment, already the highest in the EU, jumped to 24.4%, just short of the 24.5% record set back in 1994.

Even still, Spanish Economy Minister Luis de Guindos told reporters that “nobody has asked Spain, either officially or unofficially to turn to Europe’s bailout mechanisms.” He insisted that, “[Spain] doesn’t need it.” The common currencies initial losses were quickly reversed after the worse-than-expected reading of US GDP, but its upside remains limited.

Data released 30.04.2012

EU      10.00 HICP Flash Estimate (April)

US      13.30 Personal Income/ Consumption (March)

Core PCE

US      14.45  Chicago PMI (April)

The Dollar declined against the Pound and the Euro after the release of lacklustre consumer confidence figures and ahead of the highly anticipated FOMC (Federal Open Market Committee Meeting) that gets underway today.
Consumer confidence came in at 69.2 today just off an expected reading of 69.7. The market’s focus will turn to Chairmen Ben Bernanke’s comments due out this afternoon. Expectations are that the Fed will maintain its dovish stance even as forecasts look to improve. Look for the dollar to remain under pressure, with the Fed starting to halt the reinvestment of mortgage backed Securities and as expectations are for the Fed to announce that the benchmark for interest rates will continue to remain low.

The Euro made gains against the Pound and the Euro despite the news that the Spanish economy contracted by ‐0.4% q/q. Also helping the single currency was the successful sale of Spanish, Italian and Dutch denominated bonds which alleviated some pressure on rising yields. It is expected that the single currency to hold close to current ranges.

Data released 25/04/2012

UK: 09.30 Prelim GDP (Q1)

UK: 09.30 CBI Industrial Orders (April)

US: 13.30 Durable Goods (March)

US: 17.30 FOMC Policy Announcement

US: 19.15 Bernanke Post FOMC Press Conference

The Dollar declined against the Pound while making small gains against the Dollar  as global sentiment on risk changed as the news flow from the US came in reasonably good. The US PMI of the manufacturing sector improved from 52.4 to 53.4, indicating that the activity in the sector is on track for a gradual improvement.

There were also a lot of Fed speakers yesterday. The mainstream view is that the policy could stay supportive in the foreseeable future. Moderate growth and an easy monetary policy are supportive for risky assets. However, for the currency market this remains an ambiguous sign. The US economy clearly outperforms Europe, but as long as this has hardly any consequences for US bond yields, the impact on the currency market will probably be limited.

The Euro declined against the Pound and the Dollar yesterday. European equities tried to regain some ground after last week’s correction, but the move ran soon into resistance. Equities and EUR/USD nosedived during the morning session in Europe. The euro zone manufacturing PMI was confirmed at 47.7, but the details (including the reading from Spain) were not really inspiring.

Data released 03.04.2012

UK      09.30 Construction PMI (March)

EU      10.00 Revised GDP (Q4)

EU      10.00 PPI (February)

US      15.00 Factory Orders (February)

US      19.00 FOMC Minutes of 13 March Meeting Published

The Dollar declined against the Pound and the Euro after the release of a mixed slate of economic data. Personal income fell short of expectations, registering 0.2% versus the 0.4% forecast, but personal spending rose by more than anticipated at 0.8%. While the gain in spending is good for GDP, combined with falling incomes, the strain on household net worth may prove unsustainable. Nevertheless, U.S of Michigan confidence registered sharply higher than expected at 76.2, the highest reading in a year, versus 74.3 in the previous reading as Americans are more upbeat about the overall health of the economy. The improvement comes despite the recent sharp increases in gas prices as a healing labour market and rising stocks is largely offsetting the burden of inflation.

The Euro declined against the Pound while making gains the Dollar as the common currency headed for its biggest quarterly gain in a year. The support comes after Eurozone finance ministers agreed to expand the regional anti-debt-crisis “firewall” to EUR 700B. Under the agreement, the temporary EFSF will continue in its current form, providing financing to Greece, Ireland and Portugal. A newly created permanent fund, the European Stability Mechanism (ESM), worth a fresh EUR 500B, will be implemented on top of the EFSF. Including another EUR 102B that has been paid out in bailouts to Greece earlier in the crisis, the overall value of the region’s “firewall” is north of EUR800B, or roughly $1T. While the number seems high, the ESM agreement is short of the EUR 1T called for by the IMF and G20 earlier this year.

Data released 02.04.2012

UK      09.30 CIPS Manufacturing PMI (March)

EU      10.00 Unemployment (February)

US      15.00 Construction Spending (February)

US      15.00  Manufacturing ISM (March)

US                  Vehicle Sales (March)

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