Saturday, June 4, 2016

The Gimlet Eye: Sterling; Spring line, Positively Fashioned

27 May
Sterling continued to move in a positive fashion on Thursday, reaching a high we last saw in February against the euro and pushing close to a 2016 high versus the US dollar. Positive sterling sentiment however started to cool as Thursday progressed, despite economic growth throughout the previous quarter meeting the 0.4% target, but sterling still remains in a strong position heading into today. Should there be any surprises from the ongoing Group of Seven (G7) meetings, sterling could find some further support.

3 June
A lack of positivity in either data releases or sentiment has made it a difficult week for both sterling and the euro to gain any momentum in either direction. Today we have key releases in both the UK, for the service sector, and the US, related to employment, which are likely to drive sterling one way or the other. Which way is tricky to predict and it’s even trickier to guess what will happen in the medium term given the closeness of the EU referendum.

 Sterling was reasonably steady yesterday despite Mays Purchasing Managers’ Index (PMI) for the UK construction industry revealing a lower-than-expected level of growth throughout the sector.

A poor start to the day saw sterling lose ground as growth in the construction industry was reported to have stalled in May as worries on a possible Brexit weighed on this sector. However, the UK currency was able to recover some ground throughout the afternoon as European Central Bank (ECB) President Mario Draghi spoke following their monthly meeting. His statement highlighted the point that the ECB would not hesitate to act should they see any unwanted tightening in fiscal conditions.

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