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Pound boosted by unexpected UK economic strength

While the pound might have failed to get the upper hand against the euro, upbeat UK data helped Sterling strengthen against the US, Australian, New Zealand and Canadian dollars.

While the pound might have failed to get the upper hand against the euro, upbeat UK data helped Sterling strengthen against the US, Australian, New Zealand and Canadian dollars.

The GBP/EUR exchange rate dropped from €1.1812 to €1.1753 but GBP/USD advanced from $1.2844 to $1.2941, GBP/AUD hit an eight-month high of AU$1.7530 and GBP/NZD fluctuated between NZ$1.8701 and NZ$1.8869.


Wise Money Market Roundup

What’s been happening?

A better-than-forecast UK services PMI gave the pound a bit of a boost on Thursday and helped the currency recover its previous Brexit-related losses.

The services report came in at 55.8 (beating predictions of 54.5) and rounding off a trio of unexpectedly perky releases.

Markit economist Chris Williamson said of the report; ‘The upturn in the services PMI rounds off a hat trick of good news after upside surprises to both the manufacturing and construction PMIs. The three surveys collectively point to GDP growing at a rate of 0.6% at the start of the second quarter.

While we expect consumer spending to slacken in coming months, with the April survey highlighting continued weakness in sectors such as hotels, restaurants and other household-facing businesses, there’s good reason to believe that at least 0.4% GDP growth can be achieved in the second quarter as a whole.’

The news that Prince Philip will be retiring from public life later this year didn’t impact the pound, but it did dominate headlines for much of the day.

Meanwhile, the belief that Centrist Emmanuel Macron won the final televised debate of the French Presidential election bolstered support for the euro ahead of Sunday’s vote, weakening GBP/EUR in the process.

What’s coming up?

The pound could extend gains against the US dollar before the weekend if the US non-farm payrolls report disappoints. Any weakness in the labour market could make the Federal Reserve think twice about raising interest rates in June.

Sunday’s French election will be the catalyst for GBP/EUR movement at the beginning of next week. The euro could rally if Macron does take the Presidency, despite his victory being so long expected.

However, if 2017 turns out to be as politically shocking as 2016 and far-right Marine Le Pen emerges triumphant, EUR exchange rates are likely to record dramatic losses.

Next week the most high-profile events on the UK’s economic calendar are the publication of UK trade data and the Bank of England’s interest rate decision/inflation report.

The BoE is highly unlikely to take any action at this juncture, and the minutes from its report may err on the side of caution in light of the upcoming UK general election.



Markets end week on mixed note

Markets ended the week on a mixed note, following the release of US Jobs data on Friday.

Markets ended the week on a mixed note, following the release of US Jobs data on Friday.

Non-Farm Payroll showed 227k growth in the job market in January, much stronger than the expectation of 175k and up from the previous monthís 157k, the headline unemployment rate also rose 0.1% to 4.8%, above expectation of remaining unchanged.

Despite this, the bigger concern was seen in wage growth, where the average hourly earnings rose 0.1% mm in January, much lower than expectation of 0.3% mm. As a result, weíve seen the dollar strengthen, as it made further ground on Sterling early this morning.

Brexit squeeze for companies

More than half of Britain’s largest companies are now suffering from a vote to leave the European Union last June. A new survey of business leaders found that 58% said the Brexit vote was already having a negative impact on their firm, with just 11% saying that it had helped business.

This coincides with many businesses across the city calling on Chancellor Phillip Hammond to ease the burden on firms in next monthís budget, as business rates across the UK are due to rise in April for the first time in seven years.

The confederation of British Industry (CBI) has voiced that the government need to change the way rates are calculated, in order to not put further pressure on businesses.

Data to come

Data today is fairly thin as weíve already had German factory orders mm which have come in much better than expected at 5.2%. The rest of the week will feature interest rate decisions from both the RBA and the RBNZ, and with no expected changes to their policies, we could see some volatility in the markets around the Asian sessions.

Europe suffers China bailout snub

The sentiment in the money markets shifted again over the weekend as China commented on the Eurozone’s planned bailout package. Europe suffers China bailout snubChina, which has taken even more focus lately as European leaders look towards the Eastern powerhouse to invest billions more into Europe to prop up the ailing economies and banks, have yet to confirm their position.

The most recent comments stated that China will co-operate and said “a prosperous and stable Europe is important to China’s stability and development”, but it will not be the “saviour” 0f indebted nations- handing over “dumb money”.

This is likely to keep French President Nicolas Sarkozy up at night as he has been on the phone to his Chinese counterpart saying Beijing has a “major role to play” in Europe’s recovery.

The euro loss some of the ground it made towards the end of last week as traders looked at the potential of this new bailout package failing apart.

Europe needs China to add at least €60bn on top of what they already have put in to make this new step in securing Europe’s future viable.

Without it, there aren’t enough willing sovereign states or wealthy individual investors to progress and the top brass across Europe will have to look for yet another new way of saving the single currency.

Asian economies are the focus for money market’s attention

Asian currencies are stronger following of a spike in risk appetite after the agreement on Greece’s austerity measures.Asian economies are the focus for money market's attentionThe rise in Asian money markets are revealed in the ADXY (an index of Asian currencies) index which is approaching a test of its 2nd May high around 119.26 around its highest level since August 1997.

Technical levels have turned more positive, with the ADXY breaking above its key moving average levels and the 14-day relative strength index also turning higher.

The Asian rallies have been led by the South Korean Won (KRW), the Asian currency that has had the strongest link with risk over the past few weeks.

Given that risk aversion has dropped sharply since mid June it is no surprise that this currency has strengthened the most.

USD/KRW is trading around its lowest level since August 2008.

Strong equity capital outflows had kept the KRW on the back foot over much of June but there has been a bounce back in flows recently.

However, USD/KRW is likely to find it tough to break below 1060 over the short-term, especially given likely resistance from the local authorities.

The Thai Bhat (THB), the worst performing Asian currency in June, has rapidly reversed some of its losses.

The THB looks set to consolidate its gains following a decisive election result which saw the opposition Puea Thai Party gain control of parliament.

The biggest relief for markets was the fact that the outcome was relatively clear cut, suggesting a potentially a smooth handover of power.

Nonetheless, the currency has already jumped and after having dropped to around 30.40 from a high of around 31.01 USD/THB is likely to trade off gyrations in risk appetite.

The fact that the Greenback has lost some ground in the wake of firmer risk appetite and better news in Greece has also allowed Asian currencies to strengthen.

In other words, although USD weakness has helped to facilitate Asian currency strength, the recent strengthening in Asian FX is more likely to have been due to a rebound in capital inflows to the region.