Daily currency report

The stronger than expected flash estimate of HICP released in the euro zone helped to offset any euro weakness that may have resulted from the widely talked about results of the Irish banking stress tests. The manufacturing survey in the EU could be upwardly revised and continue to suggest a stronger tightening at next week’s meeting. In the UK, the positive impact of a stronger house price survey wore off as sterling touched fresh five-month lows against the euro. US ISM manufacturing is also expected to remain at strong levels, but attention will be placed on the employment data released in the US.

Sterling

The pound has clung to levels against the dollar, but movements in the euro-US dollar cross meant that sterling visited five-month lows against the euro. The lack of economic data in the UK did not help. Support from a positive reading in a Nationwide house price survey quickly wore off as investors looked forward to the CIPS PMI manufacturing survey.

US dollar

The US dollar took back some of the losses in the overnight session. The dollar found support on the back of a decent weekly jobless claims report, which bodes well for the non-farm payrolls and unemployment release. While the jobless claims data was not as good as expected, the figures have remained below a critical 400k level for many weeks now, suggesting that the rate of unemployment should continue to head lower.

Euro

The euro has defied gravity and continues to maintain relatively strong levels despite the debacle seen at Irish banks. The stress tests at four of Ireland’s largest banks showed that they needed an additional €24 billion in order to meet capital requirements. The news prompted the Irish government to announce that they were taking over the two banks that they did not already own. The government would then merge the four banks into two groups.

Japanese yen

The Japanese yen continued its decline. The release of the Tankan survey did not reflect the extent of damage to Japan’s economy by the events of March 11. Rather, the survey of large manufacturers came in at +6. While the reading is positive, investors know that this is not reality and a Reuters Tankan survey due out next week should reflect a more realistic state of affairs.

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