GBP On The Rise; Pressure on Euro
Good morning and welcome to Q2 of 2014. Right from the start we are going to have a heavy data as lots of PMI data is coming out of the Eurozone first thing this morning. GBP continued its slow trajectory upwards yesterday and if data continues to support GBP strength we could see this continue. Yesterday, GBP broke higher thanks to Janet Yellen’s pessimistic comments regarding the US Economy. Today’s Manufacturing ISM reports are important as strong figures confirming a rebound from last month’s numbers will further support the Pound and highlight strong UK recovery.
Whilst positivity rules for the Pound, for the time being at least, the Euro under the leadership of Mario Draghi is coming under increasing pressure. Whilst it is improving against the USD, further bad news and lack of action from the ECB is not likely to aid this in the long term. Eurozone inflation slowed in March to its lowest level in over 4 years keeping pressure on the ECB to react. Inflation is at about a quarter of the ECB’s 2% goal and the scaremongers will point to the risk of deflation. Why are people so caught up with low inflation? It reduces output, minimizes hiring and makes it difficult for an economy to get back on a level standing.