Pound stimulated by improved construction activity

05-05-2009 14:35

The single currency traded heavy during last night’s trading session and reached a 1.3441 level while traders anticipate on the producer price report. The inflation indicator proved that factory gate prices dropped by 3.1% on a yearly basis; a 22 years record decrease. The major cause was the 7.3% fall in energy costs while the other components declined by 1.7%, which proved that in general prices are lowered. Nevertheless, the gloomy inflation report did not increase the Euro losses as the single currency recovered and traded higher from its intraday low of 1.3321 after the release.

ECB: no deflation concerns

European companies have no other options than lower prices in order to seduce consumers who remain unwilling to spend money as the euro zone recession deteriorates. The European Central Bank stated once again that it does not fear deflation, which is proved by their point of view that price pressures will return in the last quarter of this year, while their non-standard measures will be a more serious topic at the next policy meeting. The money market interventions by the ECB stimulated a reasonable flow of credit, according to ECB Vice President Lucas Papademos, which could point to more similar initiatives.

PMI construction reading shattered prediction

The British Pound rose to 1.5115 and was stimulated by the PMI construction reading of April which went up to 38.1; the highest level since September 2008. The reading exceeded expectations of 31.9 which could indicate that easing credit markets are stimulating demand for new construction as businesses and consumers are starting to obtain required funds. The Pound Sterling continues to profit from the broader increasing optimism. With the green shoots in China and in the US, the Pound could continue to find support if the UK figures continue to follow suit. The GBP/ USD surpassed the 4/16 high of 1.5070 through which the 1/8 high of 1.5375 will be the next objective for the pair.

Greenback under pressure on growing optimism

Growing optimism remains a catalyst for more risky assets as the Dollar is pressured while during yesterday’s trading the S&P 500 eliminated all the 2009 losses. A retracement could be possible today if traders seek profits which may result in support for the Dollar. However, the ISM non-manufacturing report will probably improve from 40.8 to 42.0 as growing consumer confidence may have boosted greater demand. A recovery of the service sector indicator would add to the positive manufacturing reading and stimulate the outlook for future growth. The employment component will be dominate for traders which showed the weakest level since October 2008 at 32.3. Expectations for the number of job losses in the economy for April, which will be announced Friday in the non-farm payroll report, may be reduced by an improvement in hiring.