UK
After it emerged yesterday the UK economy shrank more in the first quarter than was initially estimated sterling dropped to 1.2458 against the euro. The revised figure showed an increased contraction of -0.2% to -0.3% but the pound bounced back well later in the session and GBPEUR rose to a high of 1.2498. Overnight the pair hit 1.2503 but has fallen back to 1.2450 this morning. Two consecutive quarters of negative growth means the UK re-entered technical recession last month but the Bank of England decided to keep their stimulus program unchanged in May’s meeting. However, the International Monetary Fund has called on the BoE to increase its bond purchasing program to stimulate growth in the struggling economy.
Net mortgage lending by UK banks dropped back in April as demand for property weakened following the end of the government’s stamp duty tax holiday for first-time buyers, and as rising euro zone tensions weigh more heavily on business and consumer confidence, a survey from the British Bankers Association showed Thursday.
GBPUSD fell to 1.5638 after the 9.30am GDP announcement but traded as high as 1.5719 later in the session before losing most of those gains overnight. The March 12th low of 1.5601 becomes the downside target to breach, a close below this opens the flood gates for further drops but an improvement in risk appetite could support the pound if conditions in the Eurozone improve.
UK stocks rose, rebounding from their biggest selloff in six months, as European Union leaders called on Greek voters to stick to austerity measures if they want to remain in the euro.
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WORLDWIDE
The euro fluctuated against the dollar after touching the weakest level since July 2010 (1.2519) as German manufacturing data dropped. A German index based on a survey of purchasing managers in the manufacturing industry declined to 45 this month from 46.2 in April.
German business confidence fell sharply in May by more than expected after a rise for six months in a row, due to growing uncertainty in the Eurozone, Germany’s IFO Institute said yesterday.
Despite the poor data, EURUSD rose in the afternoon breaking back through the 1.26 mark but euro weakness is the major talking point in the money markets. EURUSD remains below the previous 2012 low of 1.2627 and this will provide a big resistance if euro launches a recovery.
Eurozone governments are at a crucial point and must now “jointly and irreversibly” define their vision of the future, European Central Bank President Mario Draghi said Thursday in a speech where he also emphasized that Europe’s social welfare models are sustainable if managed properly.
Financial markets are punishing some Eurozone assets because of the failure of regional leaders to find a solution to the sovereign debt crisis, Draghi said. The ECB’s extraordinary measures, such as providing longer-term liquidity, only serve to gain time, he added.
The number of US workers filing first-time applications for unemployment benefits ticked down last week, suggesting the employment sector is slowly mending. Initial jobless claims fell by 2k to a seasonally adjusted 370k in the week ended May 19, the Labor Department said Thursday. It was the first time in three weeks that claims fell.
Orders for long-lasting goods increased slightly in April after a steep drop the prior month, continuing the up-and-down recovery for the manufacturing sector. Manufacturers’ orders for durable goods, items such as computers and cars designed to last at least three years, grew by 0.2% to a seasonally adjusted $215.53bn, the Commerce Department said Thursday. The improvement came after orders fell 3.7% to an upwardly revised $215.20bn in March.
Canada’s dollar fluctuated as traders speculated whether European leaders will seek measures to contain Europe’s debt crisis and reports added to concern growth is slowing in the US, the nation’s largest trading partner. The currency advanced from almost a four-month low as global stocks and commodities gained even after data showed European services and manufacturing shrank more than forecast in May. European leaders clashed over how to stem the sovereign- debt crisis that began in Greece and has wiped about $4 trillion from equity markets worldwide this month.
The South African Reserve Bank kept interest rates at a 30-year low on Thursday as the euro zone’s financial crisis threatens to crimp growth and stoke inflation in Africa’s largest economy. The ramifications of a Greek exit from the euro were “a significant part” of policy makers’ discussions in deciding interest rates, Reserve Bank Governor Gill Marcus said after announcing the bank would leave its key borrowing rate at 5.5%.
The Swiss franc weakened to its lowest level in two months against the euro amid speculation the central bank may take action to discourage investment in the nation through taxing deposits.
