EUR gets the week off to a bad start

Currency traders remain bullish on the pound as the UK’s booming property market fuels speculation that the Bank of England is getting closer to raising interest rates. Things are looking good for Sterling, house prices are hitting all-time highs, the International Monetary Fund (IMF) last week raised its forecast for Britain’s economic growth and analysts say a report on Wednesday will show unemployment is falling (We are expecting the Office for National Statistics (ONS) to confirm today that U.K. unemployment fell to 7.1 percent, which is near the 7 % level that Bank of England policy makers have said would prompt them to consider raising rates).

The Bank of England left its benchmark rate at 0.5 percent last week but there is a good chance that it could hike sooner rather than later. Supported by positive data, Sterling strengthened 0.4 percent to € 1.2096 against the Euro and back to $ 1.673 after testing $ 1.6695 earlier in the day. Overnight the US Dollar has continued to strengthen testing a fresh low of $ 1.6683.

The euro dropped the most in more than three weeks against the dollar yesterday after European Central Bank President Mario Draghi said further appreciation in the currency would trigger more monetary stimulus. As far as Draghi is concerned the exchange rate is not a policy target but it is important for price stability and growth and as such the ECB will do whatever is necessary to maintain price stability and improve economic growth.

High impact data due out today at 10:00: German ZEW Survey - A mid-term forecast of Germany’s economic situation. Concern for the Eurozone, the ZEW survey of German investor confidence today may slide to the lowest since August according to some market economists. At this stage the market is still forecasting a reading of 49 which is higher than lasts months 46 but a reversal could be on the cards if the figure comes in much weaker than expected. The trade balance figure due out at 10:00 will also be closely watched to determine whether the Eurozone is exporting more or importing more.

The dollar inched higher yesterday against the Pound and Euro, staying on firm footing after U.S. retail sales data signalled a brighter outlook for the U.S. economy. Overall retail sales rose 1.1% in March, above the consensus (0.9%) forecasts. Adverse weather conditions have weighed on GDP growth in the 1st quarter of 2014, going into the next quarter we expect normal weather conditions to prevail, leading to a rebound in activity growth – which will support the USD. Opening this morning, the dollar performed strongly in Asian trade, strengthening for a second day versus most of its major peers largely on speculation that manufacturing figures due out later today will show improvement for a second month.

The Yellen effect: Yellen speaks at two events this week, The Fed chief said in March that the central bank may start to increase borrowing costs “around six months” after concluding its asset-buying program, which economists forecast will end in October. Since then, minutes of the Federal Open Market Committee’s latest meeting showed the central bank played down predictions that interest rates might rise faster than they had forecast earlier. At the moment the Dollar is being supported by positive data but it’s struggling to really gain momentum largely due to the fact that the FOMC is being so intent on maintaining an “accommodating stance” on monetary policy. At this stage the market remains wary of developments in the Ukraine, where any escalation might quickly cause risk appetite to evaporate.