The pound shines on the strength of the Bank of England's statements, while the euro ignores bad data from the Eurozone.

Ebury, weekly currency outlook

The pound was undoubtedly the star of global financial markets. It was the best performer among all G10 currencies last week, rising almost 2% against the dollar to comfortably finish above 1,50.

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This superiority was driven by subtle comments from the Bank of England at its April meeting, suggesting that markets were not sufficiently pricing in the possibility of a first interest rate hike in early 2016. The common currency rallied despite the Eurogroup's statements regarding the new Greek program and negative macroeconomic news from the PMI business sentiment survey. The dollar lost ground against all G10 currencies except the New Zealand dollar, as its central bank hinted that it would consider cutting rates if necessary, in its effort to weaken the currency.

 

EUR

 

After several weeks of positive macroeconomic data, last week's figures from the Eurozone turned negative. The composite PMI, a leading indicator of economic growth, fell 0,5 to 53,5, a level still consistent with steady growth. The main surprise came from Germany and France, which posted the weakest data, while the peripheral countries showed stronger figures.

 

One month's data does not establish a trend; however, the composite PMI also recovered from its peak of 54 last spring, despite the overall slowdown in the Eurozone. For now, we are not changing our 2% growth forecast for the Eurozone, although it is important that we see further increases in these indicators soon to sustain this growth.

 

The euro shrugged off last week's negative news, as well as last Friday's turbulent meeting between the Eurogroup and Greek leaders, rising for the second week in a row and closing above the 1,08 level, right in the middle of the recent 1,05-1,10 range against the US dollar.

 

GBP

 

Currency markets continue to ignore news about the upcoming UK elections, focusing instead on the likely path of future monetary policy, so it was no surprise that the minutes from the Bank of England's April meeting last week triggered a surge in the pound.

 

The Monetary Policy Committee indirectly indicated that market expectations regarding the Bank of England's first rate hike might not be entirely accurate, which triggered a very positive reaction in the foreign exchange market. We, for our part, have been pointing to the first quarter of 2016 as the date for the first UK rate hike, and with these statements, the Council validates our view.

 

USD

 

Mixed data was released last week in the US, which failed to answer the key question: is the slowdown we saw in January and February a result of the harsh winter weather conditions, or are there other economic factors at play?

 

Durable goods consumption rose strongly by 4% in March, although transportation was the exception, registering its sixth consecutive monthly decline. Meanwhile, the four-week moving average of jobless claims, one of the most accurate measures of the labor market's health, is well below March's level, a positive sign for the April jobs report. Overall, we continue to believe that the recent weakness is largely weather-related and expect growth to accelerate in the early summer months.