The rise of risk appetite evident during Asians hours last night was maintained, albeit in a more half-heartened manner during the London session. European stock indices are trading modestly higher and while EUR/USD is still holding above last night’s NY close, EUR/USD has failed to extend much beyond 1.4060 and is trading choppily within a 1.4015 to 1.4065 range with few fresh incentives coming to light. Sterling again has stolen the limelight, with cable surging to a high of 1.64995 in early London hours before GBP sellers chased it back down to 1.6440. The fall in EUR/GBP was contained in the 0.8515 area.
There have been no UK data releases this morning. Investors continue to trade the range in cable (GBP/USD1.6185 – 1.6600 range). EUR/GBP remains in its downtrend but there are signs of the sterling rally vs the EUR losing momentum. This week’s disappointing OECD forecast for the UK economy (GDP at -4.3% in 2009) combined with yesterday’s weak retail sector outlook from the CBI and this week’s weak BoE lending data have raised doubts on previous forecasts that the UK economy will return to growth during the final quarter of this year. This morning key data releases have been confined to soft import price data for Germany (flat m/m in May) and confirmation that the French economy contracted by -1.2% q/q in Q1. German lander CPI data are mostly still awaited. Overnight, the NZD was hit by weaker than expected Q1 GDP. The -1.0% q/q contraction prompted NZD/USD to fall back to the 0.6420 level and pushed AUD/NZD higher as the market took on board the greater prospect of another rate cut from the RBNZ.
USD/JPY is little changed from the NY close, the JPY unable to hold on to overnight gains as risk appetite rose. Japanese CPI data overnight weakened further (-1.1% y/y) highlighting the difficulties for the BOJ when faced with rates already close to zero (0.1%) and a relatively strong exchange rate. Some brighter news came with the better than expected all industry activity index which rose to 2.6% m/m in April. There is no consensus in the market with respect to Japanese workers’ summer bonuses. Speculation that these will weaken the yen due to increased purchases of overseas assets are being balanced by talk that lessened bonuses this year are more likely to be spent on necessities.
EUR/CHF is mostly holding above the 1.5300. Intervention by the SNB earlier this week has been taken as a signal that the SNB are serious about offsetting CHF strength. There is still uncertainty whether the SNB can protect the 1.500/1.5100 level indefinitely. To some degree this will depend on the strength of the global recovery which should bring a decline in demand for the CHF. Today’s release of the June KOF leading indicator fell to -01.65 highlights the weakness of the Swiss economy.
This afternoon US May personal income and expenditure data and the final Michigan confidence data are due.
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