Moneycorp: Euro Weekly Update
May 28th, 2009
The week’s economic statistics had little effect on sterling. One rating agency warns that gilts might lose their AAA status; the other two agencies disagree. German investors and businessmen are optimistic but unhappy.
It did look backwards several times but last Monday’s €1.1250 starting point turned out to be the week’s low. A €1.1450 on Wednesday set the scene for what could have been a turning point but consolidation during the long weekend kept the pound close to €1.1350 and that was where it opened in London this morning.
The Daily Telegraph’s ongoing exposé of parliamentary nest-feathering has had surprisingly little impact on sterling. It may be because there are similar such gravy trains in other countries or because investors expect no better of their politicians. Whichever, the market has studiously avoided pointing its finger at the currency – at least on that count.
The week’s UK economic data were predictable enough to have little or no impact on sterling’s performance. CPI inflation went down in April but at 2.4% remains above target. The updated figure for gross domestic product in the first quarter was no different from the original -1.9% estimate.
The two events that did create waves were charts and credit ratings. On Wednesday the pound leapt higher against after it broke above technical resistance. Although, in theory, only the sterling/dollar picture was affected, it scored gains across the board as the market picked up the mood. Less than 24 hours later the boot was on the other foot after one of the three big credit rating agencies warned that UK government bonds were under scrutiny for a possible down-grade. The panic passed almost as swiftly as it had struck when the other two firms said they were happy with gilts’ AAA status quo.
There were even fewer data from the Euro zone than from Britain. The seasonally-adjusted trade deficit was smaller than expected at just over €2 billion and the Brussels-sponsored purchasing managers’ indices looked better at 40.5 for manufacturing and 44.7 in the services sector; not brilliant but moving in the right direction.
Otherwise the ecostats originating from euro land were national ones. ZEW’s survey of German investors and IFO’s poll of business leaders there both came up with similar results; they agree that things are betting worse at the moment but will improve in the future.
Buyers of the euro should use a stop order to avoid the risk of a sterling relapse. None is threatened at the moment but that does not make it impossible to imagine a surprise collapse. It isn’t as if such a thing has not happened in the past. Specifically the risk is that if the pound fails to break through resistance in the €1.15-€1.16 area it will fall back to what has become its comfort zone.
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