Dollar strength continues as record eurozone unemployment and poor UK manufacturing PMI weigh on euro and sterling respectively

Tom Tong03/Απρ/2013Currency Updates


Yesterday sterling fell the most in three weeks against its most traded counterparts, the greenback and the euro, after the Markit Manufacturing PMI for March dropped to 48.3 from a consensus of 48.5. This disappointing release put sterling under pressure as concern mounted that the country is heading for another recession. The UK mortgage approval figures also disappointed coming in at 51.7K against a consensus expectation of 53.7. This data again points towards a case for further QE with analysts speculating that more MPC members will side with Governor Mervyn King at the next vote. Despite this blip, U.K. Consumer Credit expanded another 0.6B in February but this was only a small silver lining for the pound.

Despite mounting speculation, above-target inflation continues to erode the outlook for private sector consumption so we may still see the majority of the Monetary Policy Committee preserve the neutral policy stance throughout 2013 in tomorrow’s meeting. Today, PMI Construction figures for March is expected to show 47.5 from a previous 46.8, adding more pressure to the MPC as the real estate sector weighs heavily on the economy.


The euro slipped to levels seen at last week’s close as unemployment in the monetary union climbed to a fresh record-high of 12.0% during the month of February, while Cyprus is looking for an extension on the time required to meet its budget target as the peripheral sovereign struggles to navigate through the banking crisis.

Despite resolution in Cyprus there is still much concern in Europe as, according to Reuters, Spain is discussing with the European Union a new 2013 budget deficit target of around 6% of GDP as opposed to the current 4.5%. The Spanish government needs to renegotiate a new target as they are likely to revise down the current GDP forecast to -1.0% from the -0.5% expected before. ECB board member Marko Kranjec, who also heads the Slovenian central bank, pledged to monitor banks on a daily and a monthly basis amid the renewed threat for contagion in the region. Moreover, Italy is still awaiting the formulation of a government with a majority sufficient enough to pass the required economic stimulus measures needed, and to guard against bond-market speculation in the wake of the financial crisis in Cyprus.

Consumer Price Index for March is forecast to print at 1.7% from its previous 1.8%, forcing ECB President Mario Draghi to sound more dovish in tomorrow’s meeting. If CPI lowers, the central bank head may show a greater willingness to push borrowing costs to a fresh record-low. However, the Governing Council is widely expected to keep the benchmark interest rate at 0.75%.


The greenback bounced back on Tuesday as the US Dollar Index snapping back from a monthly low, and the reserve currency tracked higher throughout the North American session as Factory Orders for February soared to 3.0% from previous -1.0%.

Only two important data releases are due today in the US: ADP Employment Change for March, which will give us a prediction of the Non Farm Payrolls of this Friday, and ISM Non-Manufacturing figures with a consensus expectation of 55.8 form a previous 56.0.


Written by Tom Tong

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