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May 12th: Highlights

• GBP/USD trading above 1.56
• Investors buoyant post Cameron victory
• Sterling gains two percent against USD in past week
• New Zealand Dollar dropped 2.5%

Sterling Comment

Sterling has gained a further two percent in the past week against the US Dollar with Cable comfortably passed the 1.56 resistance level now. Investors seem to be smiling, with the markets showing that Cameron’s victory is heralding a new political era. We have heard unconfirmed reports that David Miliband might be smiling in New York too.

Sterling hit a 2015 high yesterday of 1.56 following the Bank of England’s Monetary Policy Committee meeting. This helped drive through the key 1.56 threshold and we are currently trading in the region of 1.5675.

The market shrugged off retail sales data that posted its biggest annual fall in four years, affected by the early Easter. Total retail sales dropped by 1.3% last month, but this followed a 4.7% rise in March when Easter shopping bolstered the figures. Reports suggest that underlying growth was robust and the drop is not a significant cause for concern.

Key data released from Halifax showed UK house prices rose faster than anticipated in April. GBPEUR briefly touched 1.40 before pulling back to close around 1.3950. UK claimant count, released tomorrow, may provide further clues over interest rate policy movement.

Global Comment

Markets have not reacted much to the tragic news of another earthquake. Reuters reported it shook Nepal, just weeks after a devastating quake killed more than 8,000 people and destroyed hundreds of thousands of homes. The quake had a magnitude of 7.1 and struck close to Mount Everest.

EURUSD snapped a four day upward trend, failing to break through the resistance level at 1.12. Price eased back to 1.1175 on the close. Pressure may be renewed today, as investors look toward Eurozone finance ministers discussing Greece as speculation suggests they are still far from any agreement. Any further disappointment may push the euro lower against the dollar, but Greece confirmed that it has begun transferring the €750m owed to the IMF. It is unconfirmed if they are citing a 10k banking transaction limit to drag things out further! Eurozone officials believe that Greece has managed to scrape together enough money to settle its obligations until the end of May but after that, it is unlikely to afford more debt repayments let alone keep the nation going.

German Finance Minister Wolfgang Schauble hinted that Germany would support Greece to hold a referendum on introducing painful economic reforms, but investors have pointed to the fact that Athens doesn’t have enough time to hold a vote as its funds diminishing so quickly. We tweeted a link this morning to a Bloomberg article, citing Dutch FM as ‘not satisfied, but just a bit more optimistic’. The saga continues.

GDP figures for France, Germany, Italy and the Eurozone as a whole will be released on Wednesday, and will give further indications of the general health of the economic recovery.

The New Zealand dollar has dropped 2.5% so far this month after the Reserve Bank signalled in late April that interest rate hikes were off the table and it was watching conditions that could prompt a rate cut. As a result, GBPNZD is currently trading at 2.1158.