Economic data has finally managed to wield some influence on the currency markets and cut through the focus which has been on Thursday’s upcoming interest rate decisions. The run of positive UK construction data and services data this morning has seen Sterling make some headway today, whilst European retail sales have been shown to have dropped. This is a potential opportunity for those that have been waiting for Sterling to gain back ground to keep their eye on. Thursday morning will reveal the interest decisions in the UK and Europe with the exchange rates dependant on whether Europe do announce a rate rise or not.
Pound Sterling – UK Markets
Sterling has been making more headway against the Euro this morning as PMI services data came in surprisingly strong. This was the second positive piece of news after strong PMI construction data yesterday eased some of the concerns caused by weak manufacturing data last week.
The PMI Services data came in with a reading of 57.2 against an expectation of 56.9 and has helped support the Pound.
The UK interest rate decision on Thursday which is very likely to be left on hold is likely to prevent further gains on the Euro should Europe raise interest rates on the same day. A word of warning about the UK economy has come from the British Chamber of Commerce quarterly survey about the ways that businesses are struggling with the cost of raw materials and cash flow - the report also suggests that the upturn in first quarter GDP is likely to be only marginally more than the 0.5% decline seen in the last quarter of 2010.
US Dollar – US Markets
The Dollar has appreciated against most of its major counterpart currencies over the past day as comments from Federal Reserve Chairman Ben Bernanke suggested that inflation must be monitored very tightly which markets have interpreted as meaning that interest rise action is a possibility.
Interest rates have been kept close to zero in the US since December 2008 and the nation has been seen as lagging behind the UK and Europe in terms of growth and likely changes to monetary policy. Despite the comments, the Dollar is still not far from a five month low on the Euro as the European Central Bank are expected to raise interest rates on Thursday.
Manufacturing data is due later today.
Euro – European Markets
The Euro has slipped slightly against Sterling and the Dollar as Moody’s ratings agency has downgraded Portuguese Government debt by one notch to Baa1 and also warned that further cuts in the rating are possible. This follows a similar downgrading by another ratings agency Standard and Poor’s last week.
Both agencies have downgraded Portugal due to political and economic uncertainty in Portugal with fears high that Portugal will be asking for more funds for a financial bailout from Europe. Last week, the Portuguese government admitted it had missed its budget deficit target for 2010.
European retail sales have also come in lower dropping from to 0.1 percent growth, well under expectations for 0.6 percent growth.
Other Currencies – Highlights
The Reserve Bank of Australia has held interest rates at 4.75 percent for the fourth time in a row causing the currency to drop for the second consecutive day.
An unexpected trade deficit also emerged at a balance of -0.205 billion which will also not have helped the currency.
Pound falls further
British Pound Suffers Losses Ahead of Tuesday's Critical Vote