UK
GBPUSD opened the week’s trading at 1.6071, with the Greek situation creating a flight to quality, sterling performed well against a strong USD reaching a high of 1.6123 before eventually closing at 1.6107. The GBPUSD could track higher tomorrow if the Bank of England highlight an improved outlook for the U.K in the inflation report.GBPEUR again hit new three and a half year highs topping out at 1.2556. The resistance of 1.25 that proved quite solid over the past week should now act as support as this pair moves into a new trading range. Without news sparking a retrace market chatter suggests that 1.2658 is the next target.
Sterling has appreciated 4% this year, the most among 10 developed-market peers. Strategists have boosted their year-end forecasts for the pound against the euro by 3.6% in 2012.
UK trade data this morning showed a slight narrowing in the trade deficit but market reaction was muted ahead of tomorrow’s BoE Inflation Report.
Shares in Hampshire based commercial currency printing firm De La Rue soared as investors expect a surge in printing if the Greeks revert to the Drachma.
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WORLDWIDE
EURUSD opened the week’s trading at 1.2885, briefly moving to its day high of 1.2904 before taking a significant drop to the low of the day at 1.2824, a low not seen since late January this year.
This morning German Q1 GDP surprised to the upside printing at 0.5% versus 0.1% expected, this helped to lift EUR/USD above the 1.2850 level in early morning European trade. Focus remains on Athens as politicians there continue to negotiate to form a working coalition government.
Germany’s higher-than-expected GDP helped the combined Eurozone GDP figure to remain flat at 0.0% when the markets had anticipated a contraction of 0.2%.
Through this past session, we were reminded of the constant pressure that rests on the euro’s shoulders through headlines and political comments after the European Finance Ministers meeting on Monday evening reported that the topic of a Greek exit was not discussed along with the warning that no alterations to the program would be entertained.
The contrasting political commentary that we have seen this week was rewarded with a vote of no confidence from the market after we saw both Spanish and Italian bond auctions drawing higher yields.
German Finance Minister Wolfgang Schaeuble said yesterday, “Europe’s fiscal pact for tougher budget rules can’t be changed and French President Elect Francois Hollande should know it’s a done deal.” Today Hollande is due to meet Chancellor Angela Merkel, who has lobbied hard to install tougher budget rules in Europe in a bid to get the area’s sovereign debt crisis under control.
Ireland is “very hopeful” that Germany and France will help frame pro-growth measures for Europe’s troubled economy, Ireland’s Deputy Finance Minister Brian Hayes said yesterday. An agreement on a “pro-growth” agenda in Europe will help Ireland’s coalition government convince Irish voters to support the EU treaty in the May 31 public vote.
Commodity currencies such as the CAD, NOK and NZD continued to trade under pressure as concerns Greece may be the first member state to exit the euro drove investors to risk aversion. While commodity currencies suffer the fate of commodity prices they are also linked to market liquidity. The more illiquid markets suffer in times of risk aversion.
According to the newly-released minutes of the last RBA meeting, the reasoning behind the 50bp surprise rate cut move focused on the need to get borrowing costs lower for the “community” as major local banks had been edging rates higher in recent months. GBPAUD fell from 1.6130 to 1.6080 after the minutes were released, this pair has moved from a low of 1.4547 this weeks high of 1.6152 in less than 3 months.
