Good morning and welcome to today’s foreign exchange market commentary on Tuesday, the 3rd of April.
The UK manufacturing managed to surprise analysts yesterday by registering a PMI reading of 52.1 in March, against an expectation of 50.7. Any reading over 50 is welcome since it reflects expansion, but more importantly it comes at a time when other EU economies, including German, French, Italian and Spanish are showing signs of recession with PMIs falling below 50, denoting contraction. The government’s assets purchase program has succeeded in preventing a double-dip recession and Britain now comes at par with Austria and Ireland, the other two expanding economies in Europe.
That being said, we can’t ignore the risks that still pose significant threat to recovery. To begin with, we have the services sector data due on Thursday. Though a drop is not expected this time around, it however, is more important than the manufacturing reading. Also the OECD’s observation that the UK is in recession seems incorrect and the UK has apparently managed to decouple itself from the region successfully.
Meanwhile the British Chamber of Commerce said the economy should avoid a double-dip recession and urged to government to take forceful steps to kick-start the economy. The latest economic survey by the BCC predicts an economic growth of 0.6 percent this fiscal after a 0.3 percent contraction in the final quarter of 2011. The report predicts higher inflation in 2012 as food and fuel prices remain stubbornly high. The quarterly report advocates creation of a state-backed bank to boost lending to small and medium-sized enterprises. BCC’s growth projection for 2012 remains lower than the 0.8 percent projected by the government’s Office for Budget Responsibility last month.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2016
GBP/US$ – 1.6031
GBP/CHF – 1.4474
GBP/CAN$ – 1.5859
GBP/AUS$ – 1.5415
GBP/ZAR – 12.241
GBP/JPY – 131.54
GBP/HKD – 12.4520
GBP/NZD – 1.9447
GBP/SEK – 10.5710
EUR: The single currency weakened against both the cable and the greenback as eurozone PMI data came in as per market expectations. Spain’s high unemployment rate has been a cause for concern for some time now, however yesterday’s PMI reading of 44.5 came as a dark reminder of the challenges lying ahead. Also yesterday’s news that eurozone wide unemployment has touched a new 15-year high of 10.8 percent didn’t help the common currency much. The GBP/EUR pair rose to 1.2056 on weak European data before settling at 1.2016. The EUR/USD pair is expected to remain range-bound today before ECB’s interest rate decision tomorrow.
USD: The cable jumped to 1.6062 against the greenback yesterday on the back of stronger than expected UK manufacturing PMI data. The pair had however, dropped to 1.6000 by afternoon as profit taking took place. Sterling made a smart recovery nonetheless as shorts were squeezed after a wider risk rally broke out late in the day, pushing the GBP/USD pair up to 1.6016 at the day’s closure. On the other side of the pond, the FOMC minutes from the March 13 meeting are expected today along with US factory orders which in turn would dictate the greenback’s movement today. The GBP/USD pair opens at 1.6025 this morning.
