Sterling underperforms against euro and US Dollar

Sterling has recently underperformed against the euro and US Dollar however this could be short-lived given the force of negative influences building up for the single European currency.Sterling underperforms against euro and US DollarFurthermore Sterling rallied last week as positive data from the UK Manufacturing sector lured investors back into sterling.

Figures showed that manufacturing rose twice as much as forecast in February as compared to the previous month.

We also saw an improved reading for UK March house prices as shown in the RICS data while the BRC retail sales survey also came in better than expected with like-for-like sales rising by nearly 2% in March.

Think-tanks forecasted yesterday that the UK will narrowly miss a technical triple-dip recession, after a spate of positive data from industrial production and manufacturing.

At the beginning of last week, markets ended in a positive territory despite slimming price movements. US equities rose while the S&P 500 Index also posted gains consecutively in over three weeks as the US corporate earnings had a positive session.

On Friday US retail sales fell in March from February by the most in nine months, indicating higher taxes and weak hiring have made consumers more cautious about spending.

The Commerce Department says retail sales declined a seasonally adjusted 0.4% last month. That followed a 1% gain in February.

Both February and January’s figures were revised lower. Better than expected jobless claims report helped the dollar recover part losses. Economists were relieved that claims did not remain above 380,000 for the second week in a row.

First time jobless claims fell to 346,000 from 388,000, which was lower than the market’s 360,000 forecast.

Japanese monetary policy is also front and centre in the markets outlook at the moment. The Yen has declined significantly across the markets after the original QE decision was announced last week.

To recap, the announcement represents QE on a completely different scale to previous policy by the Bank of Japan.

Almost $1.5 trillion will be pumped into the Japanese economy within two years. In spite of the huge scale of asset purchase, the new BoJ governor Harauhiko Kuroda suggested yesterday that the 2% inflation target will be pursued flexibly.

In central bank tone that means they are willing to embark on more easing if necessary. We move further into the unknown. Risk sentiment remains buoyant following the aggressive easing by the Bank of Japan (BOJ) which the market is now pricing in as a move into risk.

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