Morning Report: 30 April 2015

30th April 2015 By: Ranko Berich

GBP The pound has shaken off concerns over next week’s general election to be on the verge of its best month against the dollar since September 2013. Sterling’s rally has seen it climb from the lowest since June 2010, reached earlier this month amid concern the election on May 7 will fail to produce a clear winner. While that remains a risk, traders have shifted focus onto the relative strength of Britain’s economy, which outpaced the U.S.’s in the first quarter, and the outlook for interest rates. U.K. 10-year government bond yields touched the highest level since March 10. “The pound is continuing to prove resilient despite heightened political uncertainty,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Investors remain optimistic that economic momentum in the U.K. remains favourable for the pound.”

EUR The main focus for the euro continues to be whether Greece and their European neighbours can come to an agreement which will save Greece from defaulting on its obligations. Greece and its euro-area partners are stepping up talks in a bid to break an impasse over bailout aid as early as next week, even as the country’s government sent conflicting signals over its willingness to agree on long-stalled reforms. With Greece facing a cash crunch in early May, both sides in a meeting of euro-area officials agreed to pursue intensive negotiations beginning on Thursday with, according to reports, the target of a preliminary deal being May 3. A key factor in a potential breakthrough may be the decision by Greece Prime Minister Alexis Tsipras to intervene and play a major role in the negotiations to help the process along. That gave the signal that his government may at last be willing to do what’s needed to unlock the stalled bailout. “There seems to be movement in translating the bullet points into action,” Austrian Finance Minister Hans Joerg Schelling said in an interview in Vienna Wednesday ahead of the euro-area talks. “There is a clear recognition that we have to have enough on the 11th to be able to keep talking.”

USD The dollar weakened yesterday following the release of the worse-than-expected GDP figure for the first quarter of 2015. The US economy grew just 0.2%quarter-on-quarter on an annualised basis, when the market had been expecting a figure of 1%. Federal Reserve policy makers indicated they’re in no rush to raise interest rates amid the slowing growth. While the Federal Reserve called first-quarter growth “transitory” in its statement, the absence of a stronger signal for higher rates prompted dollar bulls to begin to doubt their conviction. “The FOMC statement is a reason to sell the dollar,” said Jonathan Lewis, a principal at New York-based Samson Capital Advisors LLC, which has $7.6 billion in assets. “The Fed wants a lower dollar” to promote exports and increase import prices, he said Wednesday.

CAD Speaking to the House of Commons Standing Committee on Finance earlier this week, the Bank of Canada’s governor Stephen Poloz said the country’s central bank doesn’t believe the market is facing traditional “bubble” conditions. “There are many other characteristics of a bubble situation that are not present,” said Poloz, pointing to highly speculative behaviour- for instance, people buying multiple properties with the sole intent of selling them at a profit in the future. Still, many committee members recalled the central bank’s report late last year that called the country’s housing market overvalued by up to 30 percent. The CAD was relatively unchanged versus its major trading counterpart, the US dollar following the recent strength in CAD.

UK news

  • Telegraph. Consumer confidence at decade high but Britons save rather than splurge: Households boosted by low inflation, but Britons choose to stash cash away rather than spend on big ticket items, survey finds.
  • Reuters. UK inflation expectations ease back in April: The British public’s expectations for inflation in the next 12 months eased back in April, according to a survey published on Wednesday.
  • Reuters. UK house price growth hits 10-month high in April: British house prices rose in April at the fastest monthly pace since last June, a survey from mortgage lender Nationwide showed on Wednesday, in another sign the housing market might be starting to regain momentum.
  • Reuters. UK retail sales growth eases unexpectedly in April – CBI: British retail sales growth eased unexpectedly in April but shops’ optimism about sales in the coming month rose strongly, an industry survey showed on Thursday.