Sterling got an initial boost in yesterdays morning trading session as UK services numbers impressed to the upside, with a figure printed at 59.5 from an expected number of 58.6. This sent cable higher as we saw GBP/USD jump to $1.5285, close to a week high. The pound also looked impressive against the euro as we held above the 1.35 handle. But as we closed out the day, normal selling pressure on the pound resumed as the general election worries stormed back into investors minds and the pound was sold off. We have now see GBP/EUR break below the 1.34 handle with GBP/USD trading just over the $1.52 level. The pound will face pressure throughout the trading day and well into the early hours or tomorrow morning as we await the outcome of what is looking like the tightest general election in decades. The pound may favour anything like a Tory majority or a coalition of Tory/Lib Dem, but any coalition which is propped up by the SNP may not bode well for sterling’s value.
Yesterday saw the euro make decent gains against the majors as Athens managed to scrape together funds to make a 200 million euro interest payment to the IMF on Wednesday, but faces a more daunting 750 million euro repayment on May 12. The single currency made over a cent and a half gain over the dollar and over 1% gain on sterling. However, with some municipalities, regional and public entities resisting an order to turn over cash reserves to the central bank, sources close to the government have expressed doubt about whether Athens can make both the IMF payment and pay wages and pensions later this month. The euro may have saved its skin for this week, but looking ahead its hard to see it escaping again and again and again. A government source said the money raised so far by the decree has fallen short of a target of 2.5 billion euros and that Athens is expected to continue resorting to other one-off measures such as holding off some payments to suppliers.
The dollar had a game of two halves yesterday as we saw gains made against the pound but losses posted against both the yen and euro. US bourses closed with moderate losses after falling following comments from Fed Chair Yellen. Yellen warned about the potential dangers from equity market valuations which in her view are quite high. She also warned about the possibility of a sharp increase in long term rates once the Fed begins to tighten policy. She did also assure however that financial stability risks are only moderate. Data wise, ADP employment change for April came in at +169K (f/c. +200K) while last month’s +189K was revised down to +175K.