GBP was an under-performer through much of yesterday’s session. There wasn’t the heavy flow of selling we saw last week but a slow and steady trickle of supply led to broader weakness for the pound on the day. The USD was also slightly softer as well, perceived dovish comments from the Fed’s Bullard weighed slightly, like GBP it wasn’t heavy selling across the board but some weakness against the euro and JPY saw the USD index trade slightly lower to welcome in the week thus far.
It was a mixed bag in equity markets as well with European indices pulled lower, led by weaker German Industrial data which weighed through much of the day, while US markets are taking on the feeling of Groundhog Day. The Dow closed at a record high for the 9th consecutive day as it continues to grind higher while the S&P also closed the day at fresh record highs. Overnight an ex-BOJ member passed comment that Japans inflation expectations are optimistic and 1% would even be a good number at current pace. Not much change out of JPY on the back of this, if anything the Yen has been slightly firmer. This morning German current account data has had little impact despite showing signs of weakness.
The euro is little phased by the weaker data print from Germany however the strong rally in the euro through the year will be felt first by the regions core and you would have to question if Merkel and co will be happy to just stand aside and let the euro continue to appreciate.
The euro pressed higher through much of yesterday despite very little data, with EURUSD back above 1.1800 while EURGBP trades above .8950. The only way the euro will drop back lower is if the ECB vocally talk it back down and diminish the markets lofty expectations. We’re unlikely to see too much action from the ECB until September so until then the euro will likely maintain support. Broader ranges from yesterday remain in play.