FX Market Summary 09-02-2013: Strong data boosts Sterling again

The latest CFTC speculative positioning data recorded a further small increase in Euro long positions to just over 40,000 in the latest week from 36,700 previously and the positioning bias should continue to provide some dollar protection against the Euro. Overall positioning was still long dollars which will make it more difficult to secure a wider US advance.

Defensive considerations continued to play an important role on Monday with a continuing focus on Syria. US President Obama stated over the weekend that he would consult Congress over the use of military force in Syria. This had a significant impact in curbing expectations of an imminent response and risk appetite improved.

There was also a stronger than expected reading for the Chinese PMI index as the official index held above the 50 level and while emerging-market stresses were slightly lower. In this environment, yen demand was significantly weaker and USD/JPY was able to push sharply higher to a peak just below 99.40 as EUR/JPY moved above 131.0.

There was a marginal upward revision to the final Euro-zone manufacturing PMI release with a reading of 51.4 from the flash 51.3. Significantly, there were readings above 50 for both the Italian and Spanish readings which boosted confidence in the peripheral economies.

The Euro was unable to gain any significant traction from the data as narrow ranges dominated and there was an important lack of liquidity later in the day with the US Labour day holiday. EUR/USD did edge slightly below the 1.32 level, but activity was limited, especially with caution ahead of pivotal economic releases later this week.

The weekend UK media coverage was generally favourable with the latest investment-intentions survey at a six-year high. The stream of positive economic releases also continued with the manufacturing PMI index rising to 57.2 for August from a revised 54.8 previously. This was the highest headline reading since March 2011 as orders rose at the fastest rate since 1994.

Sterling gained support from the favourable data and there was also a boost from expectations that Verizon had agreed terms to buy-out Vodafone’s share in the group which could be worth near £100bn and generate Sterling inflows. GBP/USD pushed above the 1.5550 area and peaked just below 1.56 while EUR/GBP weakened to below 0.85.

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