Risk appetite held firm throughout the last session of week as European equity indices held on track to end the session towards a fifteen year high as positive undertones spilled over from the Asian session. Both the CAC and DAX found firm support towards yesterday’s close as investors, encouraged by substantial declines in the euro, which traded lower for the fifth straight session against the dollar touching levels towards 1.0570. Having breached tentative support towards 1.07 against the dollar on Thursday the euro could target previous lows towards 1.05 where prices bottomed out in mid-March. Meanwhile, the dollar continues to go from strength to strength with the dollar index rallying higher for the fifth straight session. While a large portion of the gains seen in the USD have been against the euro.
Cautious optimism seems to be the prevailing outlook among UK investors as a string of macroeconomic data releases today pointed towards a gradual slowdown in economic growth at the start of the year, presenting more obstacles in front of Prime Minister David Cameron ahead of this May’s election. Industrial production expanded by 0.1% y/y in February, slightly lower than the 0.3% y/y rate expected and sharply lower than the previous months growth rate of 1.2% y/y. Manufacturing production experienced a similar slowdown, expanding by 1.1% y/y in February which was again lower than the 1.3% y/y rate expected by market participants and the previous months figure of 1.7% y/y.
Capping off the day’s UK data releases was the NIESR GDP estimate for March which came in at 0.6% q/q, unchanged from the previous months reading. While the figures do not necessarily mean the UK economy is in for a tumultuous year, the timing could not be any worse in undermining the long term economic plan that David Cameron together with his Chancellor George Osborne have promised in order to return Britain to financial health. The less than impressive data pushed sterling to a fresh five year low against the dollar, as it headed lower for a second straight session, trading back below 1.4590 against the dollar for the first time since June 2010.