· Aussie drifted lower with lack of local economic data to follow;
· Sterling fared well despite UK GDP marginally missing forecasts;
· Weaker German inflation data put an end to the recent Euro rally.
With a lack of local data yesterday traders were forced to look overseas for direction with the Aussie drifting lower throughout the start of the Asian session. As the day went on, risk appetite increased ahead of European and US data overnight seeing some buoyancy return to the local currency, this morning opening marginally higher than yesterday’s open. With only minor news events on the calendar over the coming days, direction is likely to continue to be sought from overseas with key GDP data this evening in the US.
Prior to the release of UK GDP yesterday evening, Sterling had drifted higher throughout most of Asian session, however fell 40 points against the greenback as data marginally missed expectations. As data was digested Sterling bulls returned pushing the currency towards a fresh four year high as confidence mounted that a sustained economic recovery is on the cards. Comments from Bank of England officials added further support with Mark Carney describing policy makers as ‘prudently optimistic’. It is likely to take some surprising data to halt the pound’s current momentum, gaining 5.8% in the past 6-months. Despite marginally missed GDP forecasts, there is clear evidence to support Sterling strength and interest in the currency is likely to remain high.
Despite Mario Draghi’s comments this week that there is no immediate pressure for the ECB to react to disinflationary pressures, weaker German inflation data overnight reignited speculation that he may have no choice other than to react in a timely manner. German inflation has accelerated since March but missed forecasts slightly opening up speculation that the Eurozone’s largest economy is struggling to recover as the Euro currency remains comparatively high and therefore damaging exports. Draghi’s choice of monetary policy is crucial to Eurozone recovery, many expect measures in which to supress a stronger Euro and encourage exports but this might have to involve negative interest rates to discourage banks from holding the currency.
Thomas William
Go Markets