The Euro is trading at the very top of its trading range against the US dollar seen so far this year. Year-to-date the EUR/USD rate has fluctuated between $1.07 and $1.14. Since March 10, the EUR/USD rate has risen by five per cent ahead of today’s US non-farm payrolls data. UK businesses with Euro exposure watched developments in EUR/USD closely, because if Euro broke past current levels against the USD, and advanced towards $1.15 – a level last seen during China’s market interventions in August 2015 - this could pressure the GBP/EUR rate lower for longer. GBP/EUR is down seven per cent year-to-date. Eurozone inflation data met expectations, rising from -0.2 per cent to -0.1 per cent y/y in March. Despite another month of inflation below zero, core inflation figures, which ignore volatile food and energy prices, gained. Yesterday’s reports add to an increasing list of slightly positive data from the Euro Zone in March.
Sterling
Data positively showed the UK GDP grew by slightly more in Q4 than initially expected but also that Britain’s current account deficit unexpectedly hit a record high. From a currency perspective what the deficit means is that more money is leaving Britain than coming in and this puts downward pressure on Sterling. Ahead of yesterdays UK manufacturing data and next week’s US services sector report, the pound is trading at its weakest levels against the euro in 1½ years and eyeing the critical €1.24-€1.25 range. The GBP/EUR rate is trading about 4.7 per cent below its 100-day moving average which is around €1.32-€1.33. This reflects just how bearish global investors are on sterling and how vulnerable the currency is. However, another way to interpret this data is that sterling is highly undervalued and due a correction higher in April.
US dollar
Q1 2016 marked the US dollar’s worst quarterly decline since 2010, underlying the magnitude of the US currency’s depreciation which accelerated across the board in March. This cames ahead of yesterdays ‘top tier’ US Payrolls. Markets will watch for US jobs growth, or non-farm payrolls data which was expected to show a slip from 242k to 205k. But with jobs growth firm overall and unemployment expected to hold at 4.9 per cent, Fed policymakers are now paying more attention to wage growth, hoping this will help lead to a ‘sustainable’ rise in overall US inflation. Ahead of the US data, which gave investors a gauge of how likely it is that the US will raise interest rates at least twice this year, the USD fell to $1.1411 against the Euro – its weakest point since October 15, 2015. US Chicago PMI manufacturing data was much stronger-than-expected.