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The latest from the currency markets shows a very small glimmer

Still fears of credit tightening, German unemployment worse but small increases in lending. It’s time to open a few currency accounts and start beating the fall.

GBP £

PMI construction data was slightly weaker than the previous month, dipping to 55.8, from 56.7. This however, is stronger than expected and is a result of the expected upward revision of GDP for the first quarter. There remains a contraction in money supply which will increase fears of credit tightening; however, there was an increase in lending in the UK for the last reading which will be seen very positively by markets.

The main data to watch for in the UK is today’s services PMI data released at 9:30am, any figure better than the predicted drop of 0.7 basis points from last month’s reading of 55.3 will ease pressure on the bank of England to introduce additional stimulus and help to support Sterling.

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The latest non-farm employment data was much weaker than expected. A reduced figure was predicted, a drop from 201k to 178k, however the actual figure was closer to 119k. This just increases the negative tone following the poor PMI data released on Tuesday and reduced expectations in the build up to tomorrow’s payroll report.

Today’s data is expected to have minimal impact on markets, a 0.5 percent drop in Manufacturing PMI and a small reduction, to 382k unemployment claims expected.elsewhere.

EUR €

Euro data releases yesterday were partly responsible for the sell off on the single currency yesterday. German unemployment data was much worse than expected rising by 19,000 against an expectation of a drop of 9,000. European final manufacturing PMI data was down on previous estimate fo 46 to 45.9 – which, as we know, indicates contraction. There was also a higher than expected rise in Italian unemployment of 9.8 percent and the European unemployment rate overall rose 10.9 percent, 0.1 percent above expectation, the most alarming specific data was the Spanish youth unemployment remained above the 50 percent level.

Despite this poor data the Euro remained below the post-recession resistance level, which prior to the end of 2008 had acted as a strong level of support. This shows, as we have previously indicated, it may take some serious negative developments in the Eurozone to push through this barrier and indicates that we are the best level in recent times to be purchasing Euros. Final services PMI is due out at 9am, a lower figure of 54.6 is expected, although still showing growth, it has slowed. We are expecting Euro to remain someone range bound until after the election results are in over the weekend.

A Socialist victory in France may lead to a short term sell off as the uncertainty over the future of the existing treaty’s will increase. As discussed previously we also have the Greek election results on the same day, however, the results of this could lead Europe into unknown circumstances and this uncertainty could really unbalance markets. Results of this could be an influx of safe haven investment, Sterling could see small gains, however, you would expect to see support for USD and the commodities to increase.

There was however some relief for the currency, S&P’s raised Greece’s credit rating out of selective default and speculation rose surrounding further long-term refinancing as a result of today’s council meeting. Spanish yields remain just below 6percent before today’s sale with France. Spain is looking to sell €3bn with France selling €7bn of debt.

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Morning Market Rates: (Please note: These are indication prices only, they are not offer rates)

GBP/USD: 1.6121
GBP/EUR: 1.2233
GBP/AUD: 1.5650
GBP/CHF: 1.4725
GBP/ZAR: 12.482
GBP/JPY: 127.89
USD/JPY: 78.250
USD/ZAR: 7.7042
EUR/USD: 1.3105
EUR/ZAR: 10.138
GBP/NZD: 2.0028
GBP/CAD: 1.5866
GBP/AED: 5.9188

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