The currency blog

Such is the way in FX markets at the moment, no sooner had Sterling been given a boost, rising almost 1 cent against the Dollar yesterday on the back of the Bank of England minutes, than it gave up almost all the gains overnight in the Asian session. Déjà vu on Thursday, the pound is again up almost one cent after very strong retail sales and public sector net borrowing figures. Retail sales including auto fuel rose 1.1% month-on-month against a forecast of 0.3%, with the year–on-year number is now 1.3% against an estimate of 0.6%. The strong numbers were driven in particular by non store and other store retailing, producing year on year increases of 6.1% and 16.4% respectively. Public net sector borrowing data is also fuelling Sterling’s rise as figures released at the same time at retail sales show the Governments net borrow was lower than forecast, £3.17 bn versus a forecast of £4.8 bn. The tightest fiscal squeeze since World War Two looks to be taking hold, and the markets like what they see thus far.

German Producer Prices posted another increase this month, showing gains 0.4% higher than forecast at 3.5% yoy. The PPI data affirming the strong GDP growth figures released last week and helping to shrug off the disappointing ZEW economic sentiment figures earlier in the week. A lack of data from the Eurozone this week means the Euro is being driven by news flow from the other half of the pairs, but with the bond auctions on Tuesday passing without incident we can expect an unnatural degree of calm, in comparison to recent months, going into the weekend.

This afternoon sees the release of the Philadelphia Fed survey covering business conditions and production which is closely watched in the currency markets. Given the recent glut of disappointing data release we expect the survey to confirm the general slowdown in economic recovery. Also released are initial jobless claims and continuing claims.

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