Eurozone unrest benefits Sterling
Here is your weekly currency market update from Charles Purdy, director of Smart Currency Exchange.
Eurozone unrest benefits Sterling
A positive end to the week for sterling saw it set yet another seven-year high against the euro, while resisting further losses against the US dollar. With markets still fluctuating following the stimulus package announced by the European Central Bank (ECB) on Thursday, sterling performed strongly as retail sales in December showed a surprise 0.4% increase.
The week ahead is set to continue to be dominated by the situation in the Eurozone. Despite this, preliminary UK economic growth figures for the fourth quarter of 2014 on Tuesday does have the potential to affect markets. With the Eurozone economy struggling to kickstart growth throughout its member states, a better-than-expected growth figure than the 2.8% forecast could see sterling strengthen further. Aside from this, housing inflation and consumer confidence figures will provide some further insight into the direction the UK economy is taking.
Euro in for a tough week
It was another volatile and tough day for the euro on Friday, which saw the single currency continue its slide against the majority of its peers. The euro slid to fresh seven-year highs against sterling and also against the US dollar with lows not seen since September 2003. Data released on Friday morning, in terms of both manufacturing and services Purchasing Managers’ Indices (PMIs) for Germany, France and the Eurozone, was fairly negative on the whole, with only the French manufacturing PMI coming out better than expected. All the figures showed either contraction in their industries or very weak expansion.
And the bad news keeps on coming for the euro with Sundays Greek election resulting in success for the anti-austerity parties. Will it be a case of “light the blue touch paper and stand back” or will common sense prevail. I am sure there will be some tough negotiations and the Greeks certainly need some light at the end of the tunnel.
In addition there will be a lot of Eurozone data being released. Today we will have the German Business Climate (an indicator of economic health) as well as the start of the Eurogroup meetings, which will discuss the current Eurozone economy and those effecting it, which also moves on to Tuesday with the ECOFIN meetings (this is only attended by Finance Ministers from EU member states). We could see movements in the market from this as various reports are given throughout Monday and Tuesday. German retail sales are also expected from Wednesday.
German consumer inflation is expected Thursday. With the previous figure being 0%, we could see an expected fall that will run parallel with the EU Inflation, as well as German unemployment. Friday seems to be one of the busiest days on paper, as we are expected to see French consumer spending data along with inflation figures for Spain and the Eurozone. Inflation for the Eurozone is expected to continue falling for the short-term as reported by European Central Bank (ECB) President Mario Draghi on Thursday, until the ECB’s quantitative easing measures start stimulating the economy. Unemployment data is also out for the Eurozone, which has been static since August 2014.
US Dollar still the star
The US dollar had a slightly mixed end to the week, as the US again took a backseat to other currencies ‘movements. There were two data releases of lesser significance from the States, but both the manufacturing Purchasing Managers’ Index (PMI) and the existing home sales data came in slightly behind expectations. However, the dollar did manage to make gains in most areas, notably reaching an 11-year high against a turbulent euro. A strong performance from sterling saw the dollar lose out in this market.
With nothing due today, investors must wait until tomorrow for the first data activity from the US. This starts with the durable goods orders figures, and will be followed by consumer confidence data, and new home sales results on a busy day. Mid-week brings the most significant event for the long term, with the latest rate decision due, along with its accompanying statement. While no change is expected yet, any hints as to future plans are sure to be closely scrutinised. Thursday then moves to the labour market for the regular unemployment claims figure, before Friday rounds off with multiple points. The most significant will be the advance grow figure, showing a good overall growth figure for the economy. This will be supported by the Chicago PMI, and consumer sentiment data from the University of Michigan.
Japanese yen has a good start to the year
The Japanese yen had a successful end to the week, achieving, in particular, 2% gains against the euro, in line with the majority of currencies, but this was largely down to euro weakness following the European Central Bank (ECB)’s quantitative easing announcement last week. At the moment the yen seems to have benefitted from the uncertainty surrounding the question of whether the Japanese central bank is likely to try and stimulate the economy further. Market fluctuations in 2015 for most major currencies has largely benefitted the yen, given its status as a safe haven currency. We could be in for an exciting week this week as there is a fair bit of data from Japan.
The Australian dollar gained on Friday after a gauge on Chinese manufacturing showed hints of an improvement. The January initial estimate came in at 49.8, compared to December’s final of 49.6. The country sees two big data releases this week, in the form of business confidence out very early Tuesday morning and the Consumer Price Index (a measure of inflation) on Wednesday.
