Euro extends its gains ahead of Fed announcment
30/Jan/2013 • Currency Updates•
GBP finally saw some respite yesterday, finishing the day on a high against the USD. With no UK data releases yesterday, sterling gains can be attributed to profit taking ahead of the Fed’s interest rate announcement. Unfortunately, GBP gains could be short lived with talk of triple-dip recessions and speculation that the incoming Bank of England Governor Mark Carney may look to more QE should see GBP run out of steam against USD and struggle further against other counterparts. Ongoing speculation that the UK’s triple A credit rating will be downgraded will also negatively impact GBP.
Today, the BoE will release data on the amount of credit it issued in December. Net lending to individuals is expected to come in at 900m GBP for the month. Mortgage approvals are also released, with a figure of 55,000 expected.
The euro continued its positive start to the year when the European Central Bank revealed that some financial institutions where due to repay their loans ahead of forecast. This coupled with positive German economic data (The GFK institute consumer confidence indicator rose to 5.8 for February, up from 5.7 in Jan; German consumers are expecting to be paid more, which means they will be willing to spend more) gave investors further reason to believe that the worst of the European Financial Crisis was over.
Today could see a rare negative day for the euro in 2013 as Spanish flash GDP is released; expectations are that the Spanish economy shrunk by 0.6% last quarter. This would be be the 5th consecutive month of decline.
The US dollar started the day well when data released illustrated that single-family home prices rose in November. This temporarily fuelled investor sentiment, but this soon turned sour when it was revealed that consumer confidence had dropped; the consumer confidence index dropped by 8.1 points in January from December the lowest since November 2011. Unsurprisingly, on the back of this release the dollar slumped against the majority of its counterparts.
The dollar could struggle further today when some key data is released across the Atlantic. Firstly, we will see the release of the ADP employment report. Following this we will see GDP fourth quarter figures posted. Poor retail figures and last month’s widening of the trade deficit should confirm a sharp decline in growth.
Finally, this evening marks the end of the FOMC’s two-day policy meeting. No changes are expected to the USA’s current monetary policy, but we could see more members vote against QE. This would be seen as a positive and could lead to an early withdrawal of stimulus.