GBP Remains Neutral Despite 3% GDP
GBP/EUR 1.3765 (0.7262)
The end of the March and the 1st quarter saw the EUR drop to a ten day low versus the USD, overall EURUSD closed the 1st quarter down just over 11%. Greek debt negotiations are not helping the single currency at this point and the overall appreciation of the USD through Q1 further compounding EUR weakness. The ECB’s massive €1.1 trillion quantitative easing program resulted in euro weakness and drove the single to its worst ever quarter on record. The tone through yesterday’s session was slightly negative, Eurozone stocks closed lower on the day, perhaps some profit taking following a month of record gains, the German DAX closed Q1 up 22%, its best performance since inception in 1988. Stocks in the US traded lower as well, following European bourses lower and just giving back some of the gains from Monday’s sharp rally. Overall the S&P and Nasdaq were both higher on the quarter while the Dow closed slightly lower. The USD started the day on firmer footing yesterday but has slipped back in overnight trade, losing ground to the JPY which benefitted from safe haven flows as Asian equity markets traded lower. Better than expected Chinese PMI data helped lift the AUD, the aussie benefitting from positive Chinese data due to its large exposure to trade, although the RBA are likely to once again cut rates in Australia, limiting AUD upside for Q2.
The Euro was under some pressure again yesterday, weaker than expected core CPI inflation and unemployment data initiated some selling, the core reading dropping to just .6% from .7% and the continued failure for Greece and EU leaders to come to an agreement on reforms means Greek moves ever closer to default. The single currency found some cause for a rally overnight but the positivity hasn’t lasted long, manufacturing PMI data released by Markit was stronger than expected for Italy, France, Germany and not surprisingly after all that the Eurozone as a whole but Euro selling has continued through the morning. Greek negotiations continue to be the focus for EUR related pairs and unless we see a positive outcome we’d expect EUR selling to continue towards recent lows.
GBP advanced against the EUR but struggled for any meaningful traction against the USD despite a better than expected GDP print. GDP print for 2014 was raised up in the final release, showing the UK grew 3% through 2014, great news for trade in the UK but the pound has shown little positivity from the trade. EURGBP dropped as EURUSD selling pulled the pair lower buy GBPUSD also traded lower following the release, only rallying late in the day as broad based USD selling began after weaker US data. Again this morning market manufacturing OPMI was as expected, still expanding at a rate of 54.4. GBPUSD is still dropping and looking at testing yesterday’s lows just above 1.4750.