Daily Market Report 22/03/2013

With Cyprus still discussing a ‘Plan B’ option, economic data from both sides of the Channel and the Atlantic dominated currency moves yesterday, with notable gains for the pound.

Data released in the morning showed that retail sales jumped 2.1% in February, surpassing an expected 0.4% increase. Public sector borrowing figures showed a deficit of £4.356bn, beating an expected deficit of £8.25bn. The data has been viewed very positively by the markets and adds to the less than dovish Bank of England minutes on Wednesday.  The data pushed the pound to a three week high against the US dollar.

However further gains in the pound were dampened by data from the US Department of Labour showing the number of people who filed for unemployment assistance rose less than expected, with only 336,000 filing for claims. The US dollar also drew support as existing home sales rose by 0.8% to a three year high and manufacturing activity in Philadelphia increase at its fastest pace in three months with the index rising to 2.0 from -12.5.

Sterling rose 0.85% higher against the euro as services and manufacturing output in France, Germany and the euro zone as a whole fell well below market expectations adding to signs that the euro economy is struggling to come out of the recession. The data adds to the recent negative sentiment on the euro as Cypriot officials continue to work on a plan to secure emergency bailout funds and to avoid the collapse of its banking sector.

Yesterday morning, the European Central Bank weighed more pressure on Cyprus after announcing that it may cut off emergency funding to Cyprus’s banks after Monday 25th March unless a plan to ensure bank solvency is in place and the country can raise the €5.6bn needed to receive a bailout. Cypriot MPs will be voting on new legislation today that could restructure the banking sector.

Key Announcements:

8.00am – EUR – Cyprus Parliament Vote on Banking Restructure, Wealth Fund Bill.

9.00am – EUR – German IFO Business Climate (Mar): Expected to rise to 107.6.

9.00am – EUR – German IFO Current Assessment (Mar): Expected to rise to 110.4.

9.00am – EUR – German IFO Expectations (Mar): Expected to rise to 104.