The Dollar continued its advance closing at 1.4333 against the Pound and 1.2201 against the Euro. US economic data continued to be broadly positive and European debt crisis woes impacted on its main rival the Euro. US housing starts rose much more than expected to 672K annualized - the highest since October 2008 and Core PPI rose 0.2% mom and 1.0% YoY. Not all the day’s news was good, however, with building permits showing a drop below expectations by -0.1% MoM and YoY down to 5.5%. The difference could be seen as a slight warning of trouble to come as housing starts measure a later phase in construction. The low permits figures may be illustrative of earlier exuberance giving way to more caution now.

   The Euro fell again reaching lows of 1.2160 to the Dollar and ending at 112.55 to the Yen. The expected bounce after yesterday’s strong reversal day never materialized and all the gains were eventually given back. Economic sentiment as measured by the German ZEW index took a nosedive and better than expected CPI figures were largely ignored. The Euro’s decline is so persistent now that any counter trend rallies tend to be brief. The only slight positive may be the extremely low sentiment which is often a contrarian sign things may be about the reverse, however there is often a longish lag before the markets oblige.

   Sterling fell against the Dollar to end the day at 1.4333 and against the Yen to finish at 132.19 but gained against the Euro to close at 0.8511. Inflation data from the UK showed a positive increase jumping higher than expected in April to 3.7% from 3.4% in the previous month. This is the highest it has been in 17 months. Governor Mervyn King maintained a cautious tone and continued to see “substantial downside risks” even if the pace of recovery was up.

   The Yen closed at 92.23 against the Dollar and 112.55 against the Euro, strengthening as markets once again became volatile. Despite negative news, the Yen held it’s strength being primarily driven by investor risk sentiment. Tertiary index of service demand fell 3% from the previous month in March, doubling the predicted 1.5% decline – the largest drop in a year. The Yen is still living off the positive news of the last weeks which gave a positive current account surplus and rebounding retail sales. Many investors will be watching GDP figures released today.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst