Moneycorp: Euro Weekly Update
June 17th, 2009
Strong performance by Sterling – UK industrial production rises in April – G8 endorses dollar as reserve currency – Euroland industrial production continues to fall.
The pound powered ahead from last Monday’s €1.14 opening. It paused at €1.16 on Tuesday before proceeding up to €1.1750, where it opened in London this morning.
A much-reduced flow of UK economic data did no harm to sterling. The figures were a long way from perfect but they were an improvement over what had gone before. Even more important, they were generally better (or less worse) than anything the opposition could produce. The Royal Institution of Chartered Surveyors and the government both saw a slowdown in the falling price of real estate. The best news of all came with the manufacturing and industrial production data for April. Both were up on the month. Industrial production rose by 0.2%, slowing the annual rate of decline from 13.1% to 12.7%.
The National Institute for Economic and Social Research estimated that Britain’s economy grew by about 0.2% in April and 0.1% in May. If this month goes well, and if the third quarter remains positive, it will mean the end of recession as we know it. The Confederation of British Industry agrees that things are on the turn. It believes the slowdown is over but also thinks it will take a long time for the recovery to become noticeable. As The Independent summed it up; “Economy bottoms out but growth must wait, says CBI”.
The shortage of data was not restricted to Britain’s economy. Although there were plenty of figures relating to individual national economies there were just two from the Euro zone as a whole. The Sentix survey of investor confidence improved by more than seven points to a still-negative -27.0. Industrial production fell by 1.9% in April, down 21.6% on the year. Although the industrial production figures were worse than expected their impact was lessened by upward revisions to the previous month’s data.
With the ratings agencies still on the rebound from their overgenerous treatment of sub-prime securities they are showing how tough they can be. Ireland has become one of their favourite targets. Standard & Poor’s awarded it another downgrade last week, the second in as many months. It went down from AA+ to AA and there could be more to come. Ireland is not Euroland but its downgrades – and those of Greece, Portugal and Spain – do not help sentiment towards the euro.
Sterling has at last laid to rest the spectre of endless technical resistance in the €1.15-€1.17 zone. Britain’s economic data remain consistently better than those coming out of the Euro zone. As long as this continues the pound will have scope to extend its recovery. Buyers of the euro should ratchet their stop order higher again, this time to somewhere below €1.17. The next obvious obstacle is the psychological one at €1.20. Beyond that the more important technical resistance is the early December high in the region of €1.2150. In time that too should give way but perhaps not without another visit to €1.16 in the meantime.
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