Market News

14/04/2010

The pound posted marginal gains in March against both the US dollar and euro after having fallen sharply against both earlier in the month. Against the dollar, the gain was almost negligible at only ¼ cent or 0.17% while against the single currency, we had a net gain of just over a cent or 1.02%.

Not surprisingly, central bank activity in terms of interest rate movement was once again non existent with regard to Bank of England, ECB and the Fed. The Bank of England vote for no change was again unanimous and attention now shifts to the recently announced May 6th General Election. Opinion polls will be closely monitored and the much trotted out hung parliament risk will likely play a significant role in sterling performance.

The ECB were marginally more upbeat on the inflation outlook while in the States, the Federal Reserve maintained their ‘extended period’ language in relation to low rates although the phrase did come up for some debate. Longer term currency projections remain driven primarily by growth and therefore interest rate expectations which in the present climate continues to favour the U.S. dollar.

Greece was once more downgraded, this time a double-notch move to BBB- as credit default spreads widened. A €26bn rescue plan agreed last weekend by EU leaders calmed the waters somewhat although, as we go to print, bond yield spreads remain at lofty levels. Whether the package will be large enough to see Greece through in the longer term remains a doubt and will ultimately be determined by market forces.

Data wise for the UK, manufacturing and industrial production rebounded in February following January’s disappointment and the good news continued with the jobless claimant count falling by over 32,000 bringing the claimant count rate down to 4.9% from 5%. Public finances, while still a major concern were better than feared, retail sales rebounded strongly from January’s weather affected slump and the final reading for Q4 GDP came in at 0.4%, up from the 0.3% revision and the original 0.2% reading. Manufacturing PMI rose to 57.2, a 15-year high.

The news was not all good with mortgage approvals slipping and money supply remaining weak. Inflation snapped back sharply to 3.0% from 3.5% while services PMI slipped back to 56.5 from 58.4 but remains well within expansion territory.
 
Hot off the press as we write is the latest trade data which saw a marked improvement to a deficit of £6.2bn from £8.1bn, based almost entirely on increased exports.
 
Technically, the pound looks in better shape against the dollar following the recovery into the end of last month which came on the back of a few unconvincing attempts beneath the psychological 1.5000 level together with the repeated defence of long term trendline support (currently 1.4955). In fact, we have a potential ‘double bottom’ formation on the chart which would target the 1.6000 area although the 1.5585/1.5645 and 1.5830/1.5915 resistance zones will provide significant hurdles along the way. The downside risk is clear as a sustained break of 1.5000/1.4955 and then last month’s 1.4830 low would pile the pressure back on and target 1.4400/1.4335.

Interest rates                  0.50%                             
Unemployment Rate      7.8%                               
CPI Inflation                     3.0% y/y to Feb ‘10       
GDP                                   0.4% q/q to Dec '09       

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