Pound rises on increasing mortgage approvals and major rise in manufacturing activity

05-01-2009 14:12

The Pound Sterling rallied over 100 pips on an increase in mortgage approvals and manufacturing activity. The manufacturing PMI reading improved from 39.5 in March to 42.9, which was mainly caused by increasing new orders from 39.4 to 46.3. The number of mortgage approvals went up to a decade high of 39k, from 38k, while the Bank of England’s accommodative monetary policy starts to ease credit markets. Nevertheless, the total of new lending was disappointed at 40K, which indicates that more efforts will be required. The GBP/ USD traded at 1.4900 with the 4/16 high of 1.5070 as the next resistance level and a break above could lead to the 1/6 high at 1.5375 as the next barrier.

Risk appetite rises - EUR/ USD falls

The Euro has faced volatile price action due to the holiday volume in Europe and Asia, as the Euro also suffered from a lack of fundamental reports in order to boost price action. During last night’s trading risk appetite increased while the EUR/ USD fell to 1.3227. The medium term trend for the Euro could be considerably impacted as the next ECB policy meeting contains many possibilities. Another 25 bps rate cut by the central bank is likely while credit easing remains uncertain, in spite of the disharmony among the members. If risk appetite reaches US markets the Euro could find support. Nevertheless, the indecisive attitude of the policy makers could affect the Euro until next Wednesday’s release.

Japanese unemployment rate rises to a four year high – CPI drops

Optimism for the global economy continues to rise as the Yen remains pressured. The Japanese unemployment rate rose to a four year high of 4.8% and exceeded expectations of 4.6%, while fundamental data were not helpful. A 3.7% decrease in labor cash earnings will reduce hopes for internal demand to recover, while improving global demand is the only prospect for Japanese growth. For the first time in 1,5 years the Consumer Price Index (CPI) dropped, which will slow down any recovery as corporate profits will continue to be affected, due to companies forced to reduce their prices.

ISM manufacturing expected to improve

Despite the Dollar gaining versus the Euro and Japanese Yen, the dominate theme is the Dollar weakness as a result of rising risk appetite. The global contraction could be slowing down, which is proved by recovering manufacturing activity in the UK, China and in the US. The ISM manufacturing outlooks indicate to an improvement from 36.3 to 38.4 and this report will be released today, providing clarity. This would mean the fifth consecutive month of rising activity, which is mainly caused by the Chicago PMI reading which exceeded expectations and could result in a considerable recover. Future growth has been boosted by improvements in employment, orders and production. Furthermore, stable prices and thin inventories will stimulate future gains. The interpretation by the markets of the bank stress test outcomes being postponed will determine if optimism reaches US trading. Numerous banks under supervision have questioned the outcomes and demonstrated their concerns over the results of their release on weaker institutions. Traders could prefer to stay at the sideline due to the uncertainty, which could finally cause stock markets to fall and boost the Dollar.