Poor Economic data cause flux in currencies

Yesterday saw data releases from The EU, UK & US all fail to deliver on expectations and the currency markets reacted accordingly.

From the continent we saw European wide, French and German Flash manufacturing PMI figures that all disappointed analyst’s estimates, with the French Figure remaining stubbornly below 50.

This sub 50 figure indicates a continued contraction in the French economy, and alongside the other poor EU data the Euro weakened off against the pound and dollar yesterday morning.

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GBP/EUR exchange rate 24 April 2015

The Purchasing Managers Index is a vital barometer of economic health because it surveys the views of 400 to 500 of a country’s largest businesses purchasing managers on the relative business conditions in areas such as employment, production output, new orders, prices, deliveries and inventories.

As these large businesses react the most quickly to changes in market conditions, their views can effectively help monitor shifts in growth and the overall economy.

Chris Williamson, polling company Markit’s chief economist commented that the poor French PMI figure reflected a “longer-term malaise which, after a promising start to the year, in fact shows few signs of lifting.”

The economic news was similarly bleak in the US and UK yesterday; in the later retail sales figures came in 0.1% below expectation, effectively reversing the gains sterling made against the Euro and then some.

Although -0.1% is seemingly only a small difference it is important because the figures are comprised of sales from all retailers in the UK so a drop indicates a fall in consumer spending, one of the biggest gauges of overall economic activity.

The US’s disappointing data was an increase in unemployment claims, seeing an extra 295,000 people who had not previously applied for unemployment insurance, do so last week. That is 1000 up from the week before.

You can see in the dollar graph below the spikes caused on the release of these data points:

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GBP/USD live exchange rate 23 April 2015

These data events remind us how importance the economic docket can be: it’s not simply the case that overriding political and economic trends such as the Greek debt debacle and the UK General Election solely move the market.

Your dedicated broker at the Foremost Currency Group will know when there are upcoming market releases and can help you plan to try and maximize your return whether you are looking to buy or sell currencies.

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Today’s Data

There is one major data release for the Eurozone today and one event that will contribute to the ongoing speculation around Greece, so we could be in for an interesting day on the FX markets.

The data event comes in the form of the German IFO Business climate survey at 9 am; it is a highly respected measure of the German economy so if it shows further slippage as yesterday’s PMI survey did then the Euro could see weakness.

The hits could keep coming for the single currency today as the Euro Group are meeting, this time in Riga, Latvia, to further discuss the wider European economy.

Top of the agenda is of course Greece but also up for discussion are the Spanish economic plans and the role of the ECB as an overall European banking supervisor.

There are no scheduled press conferences at Euro Group meetings but delegates do regularly speak to the press throughout the day so there could be sporadic movements on Euro crosses.

David Worthington
Associate Director of Foreign Exchange
[email protected]
+44 (0)1442 892060