May 28, 2013

It was another busy week for Sterling from the opening bell on Monday morning to the end of the trading week in the U.K. on Friday as the currency struggled to consolidate loses against most major currencies. Sterling started the week on a high from, Bank of England Governor, Sir Mervyn King’s rather bullish comments on inflation and growth forecasts for the UK but the inflation figure on Tuesday put pressure on the pound as the figure came in under expectation as the markets see greater scope for further monetary stimulus moving into the new governors tenure in July. This led to investors becoming Sterling averse knocking the currency back below 1.17 on GBP/EUR and below 1.51 on GBP/USD. Retail sales on Wednesday also knocked confidence in Sterling as the April reading missed the target growth level by 1.3%. The annual IMF report, released on Wednesday, continued to undermine Chancellor Osborne’s austerity first approach to the U.K.’s recovery as it called for interest rates and money policy to remain very low and easy but called for increased investment on infrastructure to help propel the nation to sustainable growth. However, there was a sigh of relief on Thursday as it was confirmed the preliminary GDP figure of 0.3% growth was correct. This has helped Sterling finish the weak on a strong foot before the bank holiday weekend. Next week will be quiet for Sterling but the bigger data releases will be the Nationwide House Price Index and mortgage lending and approvals figures.

EUR

The Euro spent the week out of the spotlight, with attention focused on the Dollar, Yen and Sterling. German GDP came in as expected thanks to consumer spending holding steady. There was a slight improvement is eurozone PMI figures but overall they are still showing contracting business activity. Friday marked a rare positive after German business climate data beat expectations, lifting the single currency in late trading against Sterling. Next week the highlights come from Germany with unemployment and CPI due at the beginning of the week.

USD

This week witnessed the FOMC meeting from the US, where Fed chairman Ben Bernanke was quite upbeat about the US economy. In the wake of this, he further announced that the Fed is willing to pull back the foot off the pedal and scale back their asset purchases program at any time, as the Fed may deem fit. This has helped the Greenback maintain overall strength against most of its major counterparts. The minutes from the meeting revealed most hawks at the Fed are calling for quantitative easing to be tapered down as soon as June. With a division between the hawks and the doves, quite typically, the markets have been fuelled by uncertainty, with a concrete decision being pushed back until next month. Bernanke’s initial statement sparked a risk rally for assets, only to retrace the bullish run by saying that the purchases could be reduced as early as June. However, expect the USD to regain quite a bit of strength into the coming week, as Bernanke’s control over the Fed has been noted and acclaimed in the fact that the Fed is supporting the economy and the financial markets and will continue the asset buying programme (stimulus) for now as it is in the best interests for the economy.

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