UK
The pound was within a penny of a three-and-a-half-year high against the euro after Spain said it may need to sell bonds for a banking rescue, underpinning demand for alternatives to the 17-nation shared currency. Sterling has appreciated 4.3% this year against the Euro.The UK Distributive Trades Survey for May came in at 21%, well above the -7% expected. This is an indicator of short-term trends in the UK retail and wholesale distribution sector. The pound pushed further on against the euro after the data moving from around 1.2490 to the afternoon session high of 1.2532. This morning the pair is trading just above support at 1.25, as we saw yesterday another attempt to test resistance at 1.2539 is likely.
Against the US dollar, sterling started trading around 1.57, but fell to around 1.5609, the lowest since January 25th, after the issues surrounding Spain caused investors to seek the safe haven of the dollar. Low support levels have broken to under 1.55 now and sterling could experience further declines if we see a break and close below 1.5570.
This morning Net lending to Individuals m/m rose to £1.4bn, which was higher than consensus. UK Mortgage Approvals also rose slightly more than forecast.
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WORLDWIDE
The euro fell against most of its major counterparts as a debate in Spain about how to fund a recapitalization of the Bankia group increased concern the monetary union’s sovereign-debt crisis was deepening. Spain backtracked on a plan to use government debt instead of cash to bailout BFA-Bankia, the nation’s third-largest lender. The government was considering using an injection of treasury debt instead of cash to recapitalize the lender.
EURUSD started trading around 1.2570 yesterday, but fell below 1.25 as German 10-year bund yields dropped to a record high, and Spains banking crisis weighed. It then fell to around 1.2457 this morning after Bank of Spain Governor Miguel Angel Fernandez Ordonez resigned a month early amid criticism over the nationalization of Bankia group.
The euro slid further this morning, hitting 1.2457 the weakest since July 1, 2010. Against the yen it fell to 98.80 on it’s longest losing streak in four months.
The focus is on elections in Greece next month that could determine whether it defaults and triggers contagion throughout the Eurozone. By contrast, Ireland’s referendum tomorrow on whether to ratify Europe’s new fiscal treaty is passing almost unnoticed. Austerity in Ireland has been imposed by a coalition government and as in Greece, the government is warning that unless voters cast their ballots the right way, the country will be cut off from access to funding provided by the European Stability Mechanism. That would certainly trigger an Irish default.
German CPI for May came in at -0.2%, slightly worse than the -0.1% expected. The YoY figure showed 1.9%, slightly down from the 2.0% expected.
US Consumer Confidence for May showed a decline to 64.9 compared to the consensus figure of 70.
Home values in 20 US cities fell at the slowest pace in more than a year as lower borrowing costs and an improving job market gave property sales a boost. Property values fell 2.6% YoY after a 3.5% drop in February. These figures were on par with consensus and this had little effect on the dollar as last week’s New Home purchases data was very positive and gave traders an early indication that the housing market was recovering.
China has no plan to introduce stimulus measures to support growth on the scale unleashed during the depths of the global credit crisis in 2008.
Norway’s central bank will not intervene in the currency markets to avoid a stronger krone in the event of Greece leaving the euro and any resulting economic turmoil in the euro zone, its Governor Oystein Olsen told Dow Jones Newswires Tuesday.
Canada’s dollar headed for the biggest monthly loss since September against its US counterpart as speculation Europe’s debt crisis will worsen damped appetite for risk.
