Better German And Chinese Data Sets Tone

Sterling has been relatively side-lined as we wait for a raft of data and the Bank of England decision tomorrow. There was some weakness through yesterday as part of a general risk-off move, though we again saw support in GBPUSD the mid-1.54 area. We are likely to see this support continue whilst we remain above the levels we broke following first quarter GDP.

The only data out yesterday saw March German factory orders much stronger than expected, rising 2.2% M/M against expectations of a fall of 0.5%. This breaks the run of poor data for Germany and we will see if that can be repeated with the German Industrial Production, expected to show a year-on-year decline of 1.8% this morning. There will be expectations of a better number this morning given the linkage between the two numbers, so we are unlikely to see a significant move in GBPEUR.

Following the recent spate of rate cuts, we watch with interest to see whether the Norges Bank follow the lead of the European Central Bank with a rate cut. Economists are divided on whether we will see a cut with low inflation and a strengthening krone providing the scope, though rising private debt levels may lead the central bank to hold off for the time being.

The calendar for the US has been very quiet for the last couple of days, though some US dollar strength yesterday was blamed on further rhetoric around a deal on the US deficit at a budget outlook event. We did see the lowest fixing in USDCNY overnight as China posted far better than expected trade numbers overnight. The trade balance came in at USD18.2bn against expectations of USD15.1bn with both exports and imports beating expectations.

Following the rate cut and ensuing weakness in AUD, the Reserve Bank of New Zealand decided to join the party, with direct intervention followed by comments from the governor on the potential for further intervention if required. Employment has been declining over the last year though Q1 employment numbers overnight are expected to see a reversal of this trend.