UK
The pound fell sharply against the US dollar yesterday as data showed UK inflation has relaxed. GBPUSD opened at 1.5843 and fell to a session low of 1.5771. The falls have continued overnight and the pair dropped to 1.5696 this morning.UK Public Sector Net Borrowing came in significantly below expectations. Public corporations and local and central government posted -£18.5bn. Forecasts suggested a figure of £8.5bn, which in itself would have been a considerable drop from the £14.6bn posted last month.
UK Chancellor Osborne asserted that the debt crisis in the Eurozone is reaching a critical point, and the UK is preparing for a range of outcomes. Despite this GBP remained largely range bound against the euro, trading from a low 1.2350 to 1.2390. Overnight the pair has risen sharply and hit 1.2450 in the early hours of the morning.
Bank of England minutes published this morning revealed an 8-1 vote to leave QE unchanged. David Miles as usual was the only member voting for an increase but this time a number of the members mentioned their decision was finely balanced. The MPC are adopting a ‘Wait and See’ policy so additional QE could be on the cards if the economy stalls.
Retail Sales data released this morning showed a sharp decline in April, falling to -2.3% from 2.0% last month. This is exactly the sort of data MPC will be monitoring closely before next month’s policy meeting.
________________________________________
WORLDWIDE
Head of the IMF, Christine Lagarde, said she expected Greece to implement its agreed bailout program. The euro lost value against the US dollar as analysts warn the currency is becoming a crowded short in anticipation of Greece’s June elections.
EURUSD fell yesterday reversing Monday’s gains falling from an open of 1.2807 to an overnight low of 1.2656. The pair opened this morning falling further, dropping below support levels of 1.2650. A close below this today would signal further falls in coming sessions.
Germany will remain firmly opposed to the Eurobonds favoured by the UK and France. Officials are working together to prepare smaller project bonds, and deny these are the gateway to shared liability for sovereign debt.
Consumer confidence in the Eurozone posted a fractionally better than expected figure at -19 as opposed to -20, but this still paints a bleak picture for sentiment.
The potential for a third longer-term refinancing operation from the European Central Bank is increasing, according to ratings agency Fitch. “The likelihood that a third longer-term refinancing operation (LTRO) will be needed by certain banks in ‘peripheral’ Eurozone countries is increasing due to worries over Eurozone sovereigns, limited deleveraging ability and flat-to-negative deposit trends among other factors,” Fitch said in a statement Tuesday.
US Existing Home Sales was released in line with expectation; existing homes make up the majority of total sales and therefore tend to have more impact than New Home Sales on currency.
The US has stated that it will not enter into trade talks with the EU unless its own economic growth is assured.
