Dear Subscriber, Please find below today's update which gives you an insight into the current market conditions, enabling you to keep informed and up to date on the latest currency movements. GBPEUR/GBPUSD Following on from last week, the Pound continued in the ascendancy against the Euro on Friday, rising to a high of 1.2150 and the UK currency seemed unperturbed by reports that the UK trade deficit widened by the most in three months in February. The government report showed that the gap in goods and services extended to £8.77 billion, from a revised £7.88 billion in January. The report fuels concerns that the UK economic recovery will be limited due to a fundamental lack of demand from the European market and elsewhere for UK exports. The government is banking on exports to help sustain the recovery, as manufacturers and consumers alike struggle to cope with rising unemployment and inflation. Nonetheless, the Pound stood firm and also remained significantly above 1.59 versus the U.S Dollar. The UK currency traded at the highest level in three months versus the Euro, as Italian borrowing costs increased at a debt sale, underpinning the appeal of UK assets as a haven from the European sovereign debt crisis. The Pound slipped a little in early trading on Friday following the Rightmove house price data and a wider U.S recovery, but recovered through the course of the day. The recovery in risk appetite saw the Pound decline over 1% against the Australian Dollar, dropping below 1.53 by the close of trading last night. The Aussie Dollar and the rest of the higher-yielding currencies came under renewed selling pressure, after data showed that the Chinese economy slowed by more-than-expected in the fourth quarter. The Pound bounced back above 1.21 versus the Euro, while the UK currency also traded towards the top of the recent range against the U.S Dollar at 1.5940, despite reports that the Chinese economy grew by less-than-expected in the first quarter. The Australian Dollar weakened from a one-week high against the majors, as the GDP figures showed growth of just 8.1% in the three months ending in March from a year earlier. The report represents the weakest reading in almost three years. The decline in risk appetite was moderate, after a separate report showed that industrial production rose at a faster pace in March, while retail sales growth accelerated. The Euro declined for the first time in three days against the Dollar, amid speculation that the European Central Bank will need to resume bond-purchasing, as the sovereign debt crisis intensifies and the outlook for Spain deteriorates. The UK producer price index showed that a gauge of factory-gate inflation rose at a higher-than-expected 1.9% for March, which may have some slight impact on Bank of England inflation expectations, although the principal affect is liable to be on corporate profit margins rather than monetary policy. Similarly, the latest consumer price inflation data may have only limited policy implications at the time. There were still expectations of defensive demand for the Pound from the stresses in the Euro-zone, especially with Spanish fears escalating. In this context, there was some speculation that the Bank of England would voice concerns over a firmer Sterling trend. The Pound dipped lower again this morning in line with a weaker Euro, as we enter a key week for UK markets. The CPI report for March is due for release on Tuesday and the annual rate of inflation fell to 3.4% from 3.6% in February, the fifth consecutive monthly decline from the highs of 5.2% seen last September. However, the downtrend is expected to get a little slower as the impact of rising energy prices takes its toll. The Bank of England minutes will also be released this week and markets will be watching closely again to gauge the voting pattern. Two MPC members voted for further quantitative easing in March and it will be interesting to see if this has changed in light of the recent improvement in UK economic data. Also, the unemployment report and retail sales for March also features. EUR/USD The Euro rallied against the Dollar on Friday and weakened sharply over the weekend. There were further major concerns surrounding the Spanish outlook, as benchmark bond yields rose back to near the 6% level. There was also an increase in credit default swaps to a record high just below the 500 basis point level. There are still widespread concerns over the peripheral economies in the Euro-zone and there were expectations that Italy would be forced to accept higher yields at the latest bond auction, which dampened sentiment towards the Euro. Yields did rise through the day on Friday but the market was expecting a weak outcome and this limited the impact in the market. There was also a sense of relief over the immediate Spanish debt trends, which helped curb selling pressure, despite the underlying lack of confidence in the outlook. In the U.S, the latest trade data showed a decline in the deficit to $46 billion for February, while the jobless claims data was also weaker than expected with an increase of 380,000. If you need any further assistance, or require a live dealing quote - please do not hesitate to contact me on 01736 335250 or send an email to info@torfx.com Regards,
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