FX Market Overview

The theme of yesterday’s market data was the rather upbeat tone of the indices from Purchasing Managers surveys in Britain and America and a surprisingly strong German unemployment report. From the UK we had a significant rise in manufacturing sector sentiment. The index didn’t quite make it to the 50 level; the dividing line between optimism and pessimism but at 49.6, it was far less pessimistic than previous surveys. Sterling saw a swell of demand in the aftermath of the report’s release.
German unemployment fell to a healthier 6.8%, the best data since reunification. This was a surprise considering the state of the European and global markets for German goods and the perilous state of the Eurozone. Logically, a weak euro is good news for Germany but it is still surprising that employers are adding jobs at this time.
The US data was more predictably positive; another rise and another reading above 50 was recorded in the US Institute of Supply Mangers Survey for the manufacturing sector. In fact a reading of 53.9 is almost heady optimism compared to the levels we are seeing elsewhere. As is the standard pattern of things these days, positive US data results in a weaker US Dollar as investors brace themselves and move from US Treasuries into higher yielding assets. We saw a rise in global stock markets yesterday and strength in the higher interest rate currencies like the Australasian Dollars and the South African Rand. That flow was undiminished by the release of the minutes of the last Federal Reserve interest rate setting meeting. As expected, no consideration was given to any change of interest rate nor to any additional monetary stimulus. Moderate and gradual were the operative phrases with regard to their view of the US economy but a lot of time was spent discussing the way information from the Federal Reserve is disseminated and whether they would in future publish more of their medium and long term inflation and interest rate forecasts. Sorry, I’ll pause as I stifle a yawn; central banks are notoriously poor at forecasting.
These data and news items were little more than a sideshow to the continuing melodrama that we like to call Europe. The general fears remain that the Eurozone could fall apart unless further funding is made available and that Greece could exit the euro if they cannot get further austerity measures in place. The UK government is rumoured to be making preparations for a Eurozone breakup but thoughts that they might pump yet more money into the UK economy is weighing on the Pound which declined against everything other than the weakened US Dollar and Euro yesterday.
Today’s data diary includes the construction sector Purchasing Managers Index as well as mortgage data for the UK. We will also get inflation data for the Eurozone in general and Italy in particular. The afternoon brings US factory orders. Expectations are for positive UK data, a drop in Eurozone inflation and further upbeat US figures. If these forecasts prove accurate, then we can expect more of the same in terms of weakness in the US dollar, and mixed trading on the Sterling and Euro front. This 1st week of the year is awash with data though so expect moves to be rather tentative unless we see a remarkably wide variation between the forecast and actual data in any of these releases.
On a lighter note, it appears that gardening is a good Karma kind of thing to do. A Swedish woman who lost her wedding ring 16 years ago has found it again. It came up with a carrot she picked from her garden which had grown through the centre of the ring. The likely route from finger to carrot is that the ring may have fallen into potato peelings or something similar and then been added to the compost heap, finally being dug into the vegetable patch soil. And the beauty of this piece of New Year serendipity is that her ring can probably now see in the dark. What a result.