Euro Looking Resilient in the Forex Markets

Posted on | June 23, 2010 |

Last week’s UK data were uninspiring but did no great damage. The euro shrugged off all sorts of bad news because it was not bad enough.

It was not an inspiring week for the pound, which covered a two-cent range between €1.21 and €1.19.

It was not quite five-a-day for sterling but the British economy managed to put together the best part of a handful of statistics every day. Monday’s economic growth and deficit estimates marked the first outing of the shiny new Office for Budget Responsibility, a triumvirate of economists whose task is not to lie about the country’s fiscal position in a way that politicians might be tempted to do.

The figures were heartening. Growth projections for the economy in the next couple of years, although lower than those of the Labour government, were credible. It also transpired that Britain’s borrowing needs could be smaller than Alistair Darling had feared.

Tuesday’s inflation figures came in on the low side of expectations. The consumer price index went up by +3.4% in the year to May, less than the +3.5% analysts had predicted and less still than the previous month’s +3.7%.

Wednesday’s employment data looked good on the surface, with the rate of unemployment ticking down to 7.9% and a 31k reduction in the number of dole claimants. There was also modest excitement at news of 5k more people with a job. However, those 5,000 jobs were among 61k part-time appointments; the number of full-time jobs fell by 56k. More than a million people are in part-time positions because they cannot find full-time work.

Thursday’s retail sales data provided another interesting social comment. Sales were +0.6% higher in May but the Office for National Statistics drew attention to the uplift cause by the football world cup. There was concern that the footy-related sales (shirts, St George’s flags with ‘ENGLAND’ across the middle of them, television sets) would mean an upturn in British imports and further deterioration of the trade balance.

Friday’s money supply and public sector borrowing figures showed the number of mortgage approvals still stalled at a low level and another £16 billion of government financial spread borrowings in May.

Euroland remained beset by less-than-positive news. This is also affecting the spread betting markets.

Monday kicked off with ratings agency Moody’s downgrading Greek sovereign debt to Ba1 (equivalent to BB+ at the other ratings agencies). Greek government bonds were no longer ‘investment grade’ securities: In market jargon they were ‘junk’.

The development did no particular damage to the euro. Nor was it damaged by a smaller-than-expected Euroland trade surplus, a flat jobs figure for the first quarter of the year or a sharp fall in German and euro zone economic sentiment.

Other events that failed to dent the single currency were a gloomy prediction by EU Commission president Barroso to trade unionists that ‘…if they do not carry out these austerity packages, these countries [Greece, Portugal, etc.] could virtually disappear in the way that we know them as democracies.

They’ve got no choice, this is it.’ In Spain the El Economista daily claimed that plans were well-advanced for a €250 billion bailout from the EU and the IMF. Elena Salgado, Spain’s finance minister, repudiated it, saying ‘It has been denied by the Spanish government, by the European Commission, and by the IMF. How much more can we deny it?’ Not enough, apparently. The story refuses to die.

The euro, however, showed an almost Teflon-suited ability to shrug off the bad news. As far as investors were concerned, none of the week’s accusations or data were sufficiently bad to provoke a new round of euro selling. It was just noise that they could ignore, fingers in ears, singing ‘La-la-la-la-la…’

FX Trading Update by www.moneycorp.com where you can open a free, no obligation Trading Facility.

Comments