Volumes flat following Thanksgiving. Minor USD rally following strong ISM manufacturing data. Slight EUR losses

Tom Tong03/Δεκ/2013Currency Updates


London closed with the pound slightly down against the dollar and up against the euro. The whispers about the pound being over extended are ever present. However, yesterdays slim movement indicate that macro data releases will be required prior to any notable shift. Overall sterling remains at a trade weighted 5-year high.

A daily low against the dollar and euro was averted with sterling picking up in the afternoon following the release of UK manufacturing PMI. Manufacturing is still operating far below levels seen pre-recession with overall productivity and exports down. Fundamentally the sector is important as it is a significant driver of inward UK growth and a pick up is necessary to ensure the economic recovery is not centred on the service sector, banking sector and property market. UK bulls were calling an increase and the figures didn’t disappoint with PMI rising to 58.4 up from 56.5. Encouragingly, manufacturing is now at a 3-year high. Thus the pick up in sterling with losses against it’s most traded pairs minimised.

The market also got a peak into the psyche of the public towards market conditions with the release of a YouGov survey addressing public perception on inflation. The average man in the streets view will be a relief to the bigwigs at Threadneedle street. The public expects inflation over the next 12 months to fall sharply. This will reassure the MPC who are presently a whisker away from their inflation target and will be grateful for an inflation target that remains realistic and holds a parallel with the public view.

Data of note out of the UK today includes- Halifax house prices and construction PMI.


Mixed day of trading for the euro as it continues to battle for gains in the face of the lows hit post rate cut and a significant shift in market sentiment with euro bears now outnumbering the bulls. London closed with the euro down against both sterling and the dollar. Manufacturing PMI perfectly illustrated the disparity between euro members. Spanish manufacturing is down, the threat of a default is no longer around however the economy continues to struggle to claim any growth which is a worry with unemployment at crippling levels. France and Italy saw slight gains, likewise Greece. However Greek figures are poor as they are still sub-50 which is the barometer for a healthy growing sector. Euro stocks tumbled following the news with the majority of euro bourses closing down. The disparity between the pick up across the eurozone is a continual worry for the market, hence the widespread bearish view. With the eurozone unable to register 1.0% economic growth and the economic strength stemming from the stronger nations the fears for a sustainable recovery are understandable.

No data of significance out of the eurozone today.


Fair day for the greenback although volumes slim following Thanksgiving. Surprisingly strong ISM manufacturing resulted in a minor dollar rally allowing gains to be scalped against the pound and euro. London closed with the dollar strengthening against its basket. The greenback still remains a considerable distance from a return to normal trading levels and doubtless will pivot this week following a bundle of US macro data due for release.

ISM manufacturing yesterday displayed a clear increase in orders and production clearly this is welcome. Although it’s worth noting that the ISM has hugely overstated the pace of GDP growth since it began to recover in 2009.

The curtain will lift this week on revised GDP figures and Friday’s critical Non-farm Payroll report. Strong Non-farm payroll could lead to an alteration of FED monetary policy and a possible taper. The market is widely calling around the 200k mark for Non-farm Payroll which is a bullish call and would confirm US growth is sustained.

Realistically, whatever the strength of the report a change in QE at this stage is unlikely, the debt ceiling crisis will again flare up in January and the FED is still in disagreements over the true state of the economy. In such times of relative uncertainty, pulling the carpet on QE prematurely could smash market confidence, US stocks and the greenback. The majority are convinced we will see a change in Q1 next year and this is now widely priced into the market.

Today brings the Redbook chain store survey which will capture most of the immediate post Thanksgiving retail frenzy. Most data indicates spending was fairly soft however recent years have seen spikes in the Christmas build up. Whatever the survey shows its relative as the holiday season has only just begun.


Written by Tom Tong

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