IFX Market Report for 22/05/2012

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    Sterling finished the day on a 2½ week low of 1.2356 against the euro as improved sentiment played in the build-up to EU leaders meeting on Wednesday. It had hit a day high of 1.2404 following the opening of American markets.PM David Cameron said on Monday not enough had been done to end the Eurozone debt crisis but reassured savers worried by a downgrading of Spanish banks that British banks were well regulated and well capitalized.

    The BoE bowed to outside pressure on Monday, launching 3 independent reviews to learn lessons from the financial and economic crisis, but immediately ran into criticism that their scope was too limited and technical. The reviews will be finished in October in time to inform the Treasury when they are selecting the next governor of the BoE to replace Sir Mervyn King next year.

    UK CPI data released this morning showed inflation in the UK has dropped more than expected to 3.0% from 3.5% last month. The fall will be welcomed by UK householders but the gives the BoE more room for additional QE, subsequently the pound has now fallen below 1.58 against the US dollar is around 1.2350 versus the euro.


    The US dollar remained largely unchanged versus its major rivals on Monday. The start of the trading week has seen little economic data that would sway investors in any one direction. Against sterling it closed on par with the open rate at 1.5820 having reached a high of 1.5780 but USDJPY rebounded from Friday’s 3-month low of 78.966 back to around 79.300.

    EURUSD also finished off the day pretty much where it started at 1.2815 but as the US markets opened, risk sentiment rate drove the pair temporarily to a session low of 1.2719.

    Investors continue to monitor the political situation in Greece as the country awaits a second round of elections due to take place on June 17th. The euro is likely to perform based on how confident investors feel a compromise will be reached and whether Greece can remain in the Eurozone. For the time being, yesterday’s close above 1.28 against the US dollar points suggests further rises but many analysts expect declines if EURUSD can’t break back through 1.2918.

    EU leaders meet tomorrow at a special EU summit in Brussels. After discussions at last weekend’s G8 meeting, French President Hollande will be pushing his proposals to promote growth including issuing of Eurobonds. Spain and Italy are said to be keen on the idea whilst German Chancellor Merkel has openly voiced her opposition.

    Spain may see another economic contraction in the second quarter of this year, Economy Minister Luis De Guindos said. GDP shrank 0.3% in the first quarter, pushing the economy into a technical recession after 0.3% slump in economic activity in the last quarter of 2011.

    Eurozone construction output rebounded sharply in March, the latest figures from Eurostat revealed Monday. Construction output jumped 12.4% month-on-month in March, recovering from a 10.4% slump in February and 0.5% fall in January.

    The Conference Board’s leading indicator for China’s economic activity increased at a steady pace in April, suggesting a modest growth ahead. Meanwhile, the underlying indicators showed some degree of weakness, sending a mixed message over the prospects of the economy.

    The Reserve Bank of New Zealand said earlier that inflation expectations for the second quarter ticked down to 2.4%, from 2.5% in the previous quarter dampening expectations for a rate hike in the near future.

    Australian and New Zealand dollars strengthened against their major counterparts as Asian stocks rose on hopes that China will take more measures to prevent a rapid economic slowdown. The Aussie climbed to 5-day highs of 0.9923 against USD and 78.82 against the yen. The NZD also advanced, hitting 5-day highs of 0.7676 against USD and 60.98 against the yen.

    Daniel Fountain / 21.05.2012

    Editor, Hotel Designs


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