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A big fall in Eurozone inflation opens the door foe an interest rate cut from the ECB tomorrow.

1st May 2013
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Today's Highlights

  • EU inflation slips
  • Fed expected to stay on hold
  • Chinese manufacturing slows; AUD weakens a little

FX Market Overview

May the 1st be with you. I know that line will work better on May the 4th but I’ll still be in bed at this time on Saturday so I won’t get a chance to show you what a Jedi Master I am. Drowsy I will be.
 
The week is heating up and I’m not talking about the weather in London, although that has been rather spring like. Nope, we are starting to see more volatile trading amidst some surprisingly varied data releases. This morning's UK manufacturing PMI will be closely watched and, as I write, there are suggestions the data has been leaked because we have seen significant adjustments in Sterling, bonds and equities.
 
A big fall in Eurozone inflation opens the door foe an interest rate cut from the European Central Bank tomorrow. According to the 1st estimate of Eurozone inflation, price rises slowed to just 1.2% when most analysts had forecast a 1.7% figure. That, along with another rise in Eurozone unemployment bringing the unemployment rate to 12.1% should be enough to force the ECB’s hands and result in a 25 basis point cut tomorrow. The euro is on the weaker end of its ranges ahead of that meeting so we shouldn’t see too much more weakness after the event. That prediction changes though if they cut this time and pointedly leave the door open for further easing. Then the euro will fall further. Meanwhile, the lack of European data today and the fact that it is a May Day holiday in many countries means trading volumes will be light and therefore we could see unexpected volatility. There are ways to use that volatility to your advantage. Call us if you would like to discuss how it might affect you.
 
On the other side of the Atlantic, we had mixed data. The Chicago Purchasing Managers Index fell in April for the first time in six months. The reading was just 49.0; below the 50 division between expected growth and contraction and well below last month's reading as well as the market forecast. Countering that was a sharp rise in consumer confidence. The index came in at 68.1, up from just 61.9 in March. That should offer a combination of encouragement and concern to the Federal Reserve as they head into their interest rate setting meeting today. No one is expecting any change of policy from the Fed but there is always a nervous air in the markets when one of the major central banks meets. Just in case they spring something on us. The US Dollar is weaker ahead of that meeting.
 
The Canadian Dollar had rather a good day after February economic growth was announced at 0.3% on the month and January’s data was upgraded to 0.3% as well. The mining, manufacturing and agricultural sectors led the way and that is encouraging for the Canadian economy. It offers a mixed bag of news for those planning to move to Canada. If industries like that are in rude health it does mean there are greater employment opportunities but the strength of the Canadian Dollar makes it an expensive move in the first place. What we are noticing is an increase in the number of people who are fed up of waiting for the Canadian Dollar to rebound and are taking the plunge for lifestyle reasons. Good on ‘em.
 
The Australian Dollar starts the day in relatively strong form in spite of a slowdown in China which threatens to hamper Aussie exports in the months ahead.   A PMI reading of 50.6 is still the right side of the index (above 50 signals expectation of expansion) but it was down from the previous level and below market expectations. The initial reaction was an obvious one; commodities slipped and the Australian Dollar weakened a tad but the reaction against the Pound was more muted than it was against other currencies.
 
Aside from that, I hope you have a great day. Be careful when you dance around that Maypole; strangling by ribbon is rife at this time of year so make sure a Health and Safety assessment has been done before you start a’jiggin and a'prancin.
 
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