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The improved performance of the Eurozone and the divergence from the pace of growth in the UK continues to benefit the EUR/GBP cross. Finally, the only damper in today's basket of data was trade numbers which came in mixed. Current account for the region widened more than expected but the trade balance came in narrower.
British Pound
The British pound strengthened against the dollar for the third consecutive day. CBI industrial orders for the month of April was the only piece of data released today. The index improved from -16 to -11 in March, which is the highest reading in the index since Feb 2005. Tomorrow the market will be anticipating the first quarter GDP. Growth is expected to remain stable at 0.6 percent .
The country's gradual recovery would be consistent with recent data. Wage growth was also stable at 3.0 percent. For the time being, unless a new wave of merger and acquisition news sweeps the UK, the British pound will continue to trade based upon dollar factors or its relative performance compared to the Eurozone economy.
Japanese Yen
After Monday's extensive moves, the Japanese Yen gave back a small portion of its gains against the majors today. In general, over the past few months, moves to the downside in dollar yen have been far more brutal than moves to upside. The reason is because the risks for the Yen are more weighted to the downside than the upside. The only upside factors keeping the yen lifted are higher interest rates in the US and the Bank of Japan's zero interest rate policy.
However if there was ever to be a surprise similar to the one this weekend, the possibilities are greater in favor of the yen than the dollar. The market has been hanging onto the possibility of either more revaluation from China or a much anticipated move on monetary policy from the Bank of Japan - both of which would be positive for the yen and negative for the US dollar.
Kathy Lien, Chief Strategist, Daily FX
