The currency blog

With a vast diversity in indicators leading to widely different opinions and prognostications as to the likely outcome for the current global economic down-turn. No one can be wrong - just yet - and no one will remember all the predictions that turn out to be wide of the mark. It is therefore no surprise that we see predictions for both a V shaped recovery but also for the recession to be maintained, bumping along as an L shape.
Last week we saw just that scenario with widely differing US Corporate results giving equity bears hope, coupled with much worse than expected US retail sales, reminding the markets that we are still very much in the midst of a recession. The consumer still appears to be loathe to emerge from its shell… On the positive side, US Banks returned to profit, Chinese GDP was still stronger (although at a lower level) and there was a positive mood reported in a US consumer survey on Friday. From the UK, the new external MPC member David Miles was bullish on prospects for the economy and housing data from RICS and Rightmove have been positive.
This week’ focus, from a UK perspective, is obviously going to be Wednesday’s Budget presentation from The Chancellor but there are some other interesting and relevant pieces of data that need to be watched. Today, the CBI produce a pre-emptive strike through their economic forecasts - not especially bullish I would guess, and then tomorrow sees the release of the UK monthly inflation data. These are expected to show that March CPI had fallen back to 2.9% from the previous month’s unexpectedly high 3.2% with RPI down to -0.5% from previous flat. On Wednesday, ahead of the Budget, we get UK unemployment (up again) and the release of the minutes from this month’s MPC meeting (fairly bland) and on Friday we see the GDP figure for the 1st Qtr and monthly retail sales. Now one expects that Mr Darling will know exactly what these last 2 pieces of data are prior to his speech and therefore they should present no surprises …… That’s the plan anyway. I think that the market will be tempted to be small short of Sterling on the forex side going into the middle of the week.
The Dollar has benefited from a dip in equity values with the strong currency in turn causing a dip in gold and other metal prices. Oil remains joined at the hip to the $50 per barrel price and given the outlook for industrial manufacturing and the automotive sector, will still be there in 6-months time. With continuing bad economic news emerging from the Eurozone (although there might be some pick up in business sentiment within their PMI data this week), expect to see the Euro maintain its down move against the Dollar over the next 5 days. FX traders will however be largely led once again by equity performance.

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