Greek financial concerns dominate the market but the Euro strengthens

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Greece's efforts to sort out it's sovereign finances continued to dominate the market yesterday, with stories suggesting that central bankers in the Eurozone are no longer ruling out a restructuring of Greek government debt. There was also conflicting reports in the press; one suggesting the IMF will participate in awarding Greece a further €60-70 billion, whilst another suggests the IMF will not award any funds to Greece. In the midst of this, Greece has apparently trying to agree a deal to cut VAT. This is all occurring at a time when Greece is missing its targets for deficit reduction.

With all this going on it is it is a wonder why the Euro strengthened yesterday, going from £/€ 1.1510 at the start of the day to close below £/€1.1400 against Sterling. It wasn't Eurozone data that propelled the Euro.

German retail sales fell short of expectations in April, while overall Eurozone unemployment was steady at 9.9%. By delving deeper into the unemployment report revealed some worrying figures for Spain, with 20.7% of the workforce unable to find a job. Inflation in the Eurozone ticked down from 2.8% to 2.7% according to the provisional figures.

The Euro was not the only currency to prosper in the face of apparent adversity. The Swiss Franc was up despite Swiss GDP growth in the first quarter of 2011 which was expected at 0.7% but came out at 0.3%.

There was an even stranger reaction to a contraction in Australian GDP by -1.2% in the first quarter of 2011. The Aussie Dollar jumped a cent higher on the announcement, closing the day against Sterling a cent and a half better off than it started the day.

The reaction to the Bank of Canada's policy decision was more typical. Whilst keeping interest rates at 1%, the Bank of Canada said it would "eventually" have to take rates higher. It seemed investors thought "eventually" meant "immediately" as the Canadian Dollar regained almost two cents against Sterling.

In the US, the Chicago purchasing managers' index plunged 11 points to 56.6 and the Conference Board index of consumer confidence was five points lower at 60.8.

Today, manufacturing PMIs dominate another full economic calendar that also includes UK lending figures and US labor market figures.
UK manufacturing PMI is expected to decline for a fourth consecutive month in May while Eurozone manufacturing PMI is expected to signal that growth has slowed into Q2 following the robust pace of Q1.

From the US, the ISM manufacturing index is expected to post a third consecutive decline based on the signals from the Chicago PMI and regional Fed surveys.

After yesterday there is no way to know how investors will respond to today's possible outcomes. Having said that, it is a relative safe bet to say a poor UK manufacturing PMI would be bad for Sterling