The currency blog

It was a disappointing night in Asia as markets digested the news that the Chinese Purchasing Managers’ Index slowed for a second consecutive month, adding to concerns that the world’s fastest growing economy is cooling. The PMI data itself fell from 53.9 in May to 52.1 in June sending the Nikkei down 2.1%, Sydney down 1.9%, Seoul down 1.7% and Oil down $1 to $74/bbl. Analysts fear that the negative news combined with austerity measures in Europe could weaken the pace of overall global recovery if the slow down continues.

Some positive news from Europe yesterday as the European Central Bank reported that there was a much lower demand than expected for its 3 month liquidity programme. Eurozone banks took advantage of €442 bln in 12months loans that expire today.

A small step in the right direction as the news suggests that interbank lending is taking place between European banks and that the ECB will not be relied on as heavily to meet the short term funding needs of banks. The news gave a welcome boost to the Euro which has rallied against Sterling and the Dollar and we are now trading at GBPEUR down at 1.2130 and EURUSD at 1.2290. The single currency found further support this morning as Spain successfully sold €3.5 bn of 5 year bonds at auction achieving the target for the sale despite the a down beat message from Moody’s rating agency yesterday. The Iberian state is being closely monitored by the Moody’s, Spains AAA credit raking is under review due to declining growth prospects and challenges in meeting their budget deficit targets. The agency went on to say they have concerns over the impact of increasing funding in the medium term, “If at the conclusion of the review, Spain’s ratings are lowered, it would most likely be by one, or at most two notches”.

Finally back to the UK and David Cameron has come under fire for his government spending cuts yesterday as it is estimated that nearly three quarters of a million public sector jobs will be lost. The row took place in the House of Commons yesterday during Prime ministers question time as the latest report from the Office for Budget responsibility (OBR) forecasts one in eight jobs will be lost by the end of this political term. The news was defended by Cameron as he claimed that overall jobs would increase in the private sector and would create nearly 2.5m new positions.

In terms of the rest of week, all eyes will be on the Non-Farm Payrolls data and unemployment data due out on Friday, both forecasting negative data month on month.

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