Sterling Survives Easter
April 8th, 2010
Fourth quarter UK economic performance revised upwards. Investors still twitchy about the Greek deficit.
It took until Tuesday for sterling to progress far beyond Monday’s €1.11 starting point but after that it was a quick jump to €1.1250 and a much slower progress to the high of early this morning at €1.1350. The pound opened close to that level in London but it had lost any trace of upward momentum.
The Three Chancellors’ performance on British television at the beginning of last week was unexpectedly harmonious. They were in agreement about many aspects of the nation’s economic plight and how it might be sorted out.
It was vaguely reassuring to investors, suggesting as it did that a hung parliament might bring less policy wrangling than they had previously thought. The tone remained positive for sterling throughout the week even if it did not result in gains on every front.
The week’s UK economic evidence was not wholly convincing but was not without its good points. While mortgage approvals remained at a low level, consumer credit expanded more quickly in February.
Logically that ought to mean that people were becoming more adventurous in their spending habits but if they were, it seems not to have carried over into the following month: Gfk’s index of consumer confidence was a point lower in March at -15. The purchasing managers’ index, a barometer of performance for – in this case – the manufacturing sector continued its improvement.
It rose to 57.2, its highest level since the beginning of the recession. Nationwide’s house price index resumed its upward progress after a wobble in February, clocking a 0.7% increase that leaves prices 9% higher than a year earlier.
Perhaps the best news was an upward revision to Britain’s overall economic performance in the fourth quarter of last year. Gross domestic product grew by +0.4% rather than the +0.3% previously estimated. With no further revisions due for the Q4 data Britain can breathe a sigh of relief and put the recession behind her
Most of Euroland shared with Britain the long Easter weekend. It was no great effort to telescope a week’s worth of euro zone data into four days. The EU Commission’s confidence measures showed economic confidence a couple of points higher at 97.7, consumer confidence unchanged at -17 and industrial confidence three points lower at -10.
The manufacturing purchasing managers’ index did not mirror the Brussels assessment, rising – albeit slightly – from 56.3 to 56.6. Unemployment across the euro zone went up in February from 9.9% to 10.0%.
Although the euro hoped to have rid itself of the Athenian Curse a week earlier, the problems of Greece continued to dog the currency. It started off well enough with the Greek government managing to sell €5 billion of seven-year bonds but the issue was covered only 1.4 times (i.e. there were bids for just €7 billion of the stock).
Ignoring this warning, Athens quickly tried to get another billion away but received bids for only €390 million. That was not the desired result and made investors wary of future issues. In an effort to find new buyers the Greek finance minister now plans a USD-denominated issue of between $5 and $10 billion. Currency traders will be watching its progress closely.
After four weeks of zero progress sterling enters April a couple of cents above its monthly average and close to its average price over the last 12 months. Where it goes from here will depend on the UK opinion polls and the perceived success – or otherwise – of the Greek efforts to manage the public sector deficit.
Buyers of the euro should hedge 50% of what they will need. If the money is required in the near future they should consider covering the whole amount.
Get the best foreign exchange rates with no bank fees or commission charges using your Moneycorp Privilege Card
Related Posts
- Moneycorp: Sterling Still Riding High
- Moneycorp: Sterling & Euro in Limbo
- Moneycorp: Sterling Struggles with Skeletons but Survives
