Worth reflecting on the session we have seen so far. The euro is overall firmer thanks to some punchy preliminary PMI numbers from Germany, contrasted with some more soggy numbers from France. But at least all are showing readings above 50, looking at the flash German, French and Eurozone numbers this morning. The main focus for the ECB though is with the risk of deflation, with the initial reading for CPI haivng coming in at just 0.5%. The question is what the ECB is prepared to do about it and how effective any measures are likely to be. Some think that the easier approach is for the ECB to "talk down the currency" and this could be the risk at the May meeting (8th).
CPI data is released only quarterly in Australia. The overnight release is expected to show the headline rate rising to 3.2%. If anything, risks are to the upside and the danger from this is that the RBA starts to get a little more vocal regarding the currency. The Aussie is around 4% higher vs. when they were talking down the currency at the end of last year. Has the outlook changed that much that negates this currency impact? Probably not, so the risks of a change in statement early May makes the Aussie vulnerable.
This morning saw the release of UK unemployment data with the headline figure falling to 6.9%, far lower than the expected decline from 7.2% to 7.1%. This has given sterling a shot in the arm taking GBPUSD back above the 1.6800 level at the time of writing and within touching distance of the fresh four year high it marked last week. What was most noticeable was that cable drifted higher and as the data release approached it had already risen some 40 pips or so before its dramatic spike following once the figure was announced.
More pressure will be put on the BOE now to justify keeping their benchmark interest rate at 0.5% into 2015.
The Bank of England has today kept rates on hold at 0.5%. This has been the same level since they reached their historical lows back in March 2009. Sterling has weakened a little on the back of the decision as a result with Cable at 1.6770 and EURGBP at 0.8265 at the time of writing.
The chart shows the dollar index in green and the inverted Dec-15 Eurodollar contract. The latter is the market expectation of 3M money at the expiry of that contract in December. It's inverted because the implied rate is 100 minus the price. So if it's 99, then expectation is that rates will be 1% (100-1). Anyway, the point is just how tight the fortunes of the dollar have been tied up with interest rate expectations. And to this end, the Fed minutes last night took us right back to where we were before the March meeting, after which Yellen was perhaps a little too specific in terms of timing the first rate hike. Hopefully she has now learnt from her predecessor to be a little more obtuse.
The reaction seen on sterling to the stronger industrial production data suggests some very thin underlying liquidity, given the rise of 0.9% on the headline measure (expected 0.3%). Cable up over 50 pips to above 1.67 on the back of this. At the margins, the data gives some confidence that the pace of the recovery can be sustained at least in the early part of this year, but this is only just over 10% of the economy in terms of output, which is why sterling gains look a little overdone.
Note that the Aussie is making new highs for the year at the start of the European session above 0.9320 on AUDUSD. This has been the one that has gone against the grain so far this year, from being actively talked down by the central bank into the tail end of last year, to seeing a more neutral stance emerge. It has also de-coupled to a fair degree from the China story, something that has been slowly emerging for over 18 months now.
As mentioned the Daily, there area a number of ECB officials speaking and due to speak today. What we've seen so far underlines the impression that the ECB have been more seriously thinking about the practicalities of enacting further stimulus measures, but as Mersch said earlier, the ECB is not preparing for such unconventional monetary policy measures. This has allowed the single currency to touch the highs seen on Friday, as the market is given the impression that nothing is yet set in stone. We are likely to get more comments as the ECB head Draghi is in Washington this week for World Bank and IMF meetings.
UK CPI data in line, falling to 1.7% on headline, as expected. Sterling slightly firmer, with cable above 1.65 level.
German Ifo Business Climate Index in March at 110.7 vs 111.0 forecast.
German IFO data slightly weaker than expected, falling to 110.7 from 111.3. Impact on EUR minimal, EURUSD steady at 1.3830. High 1.3846 overnight.
EURUSD losing initial gains on stronger French PMI data as German release disappoints. EZ release at 09:00 GMT. EURUSD below 1.38, high at 1.3825.
USD slightly firmer after US retail sales data rises 0.3% (expected 0.2%), but revisions to back month downwards. Claims better, 315k. UEUR 1.3940. JPY 102.7.
The euro is nudging at the 1.39 level on EURUSD as US markets open (only four hour difference remember). We've had relatively bullish comments from German Finance Minister Schaeuble on Ukraine (resolution likely), Germany (strong fiscal position) and rates (too low for the medium term.
GBP slightly firmer after UK industrial production data, headline rising 0.4%, with prior month revised higher. Cable 1.6630. EURGBP 0.8332.
EURUSD initially down 30 pips to 1.3870 after stronger headline payrolls (175k, expected 149k. Rate at 6.7% (expected 6.6%). Initial dollar strength fading...