Dollar further pares recent gains following downward revision of GDP, as EU scale back on FTT
31/May/2013 • Currency Updates•
With sparse data out of the UK yesterday, sterling’s move was more focused around data out of the US and eurozone. We saw negative data out of the US and sterling strengthened off the back of this as it rose to its highest point in more than a week. This advance was quickly erased as uncertainty loomed over the outlook for UK monetary policy, especially with the anticipated incoming of Mark Carney as the new governor of the Bank of England who favours easing measures to boost the economy.
The UK housing market seemed to be gradually gaining momentum as UK house prices in May increased by 0.4% according to the latest survey from the Nationwide building society. This positive indication may lead to a spur in industry activity and attract investors.
UK stocks climbed yesterday as the FTSE 100 Index recovered from its lowest levels in 2 ½ weeks as mining companies and shares of banks rallied.
Today there is no major data out from the UK.
This week we saw disappointing US GDP and jobless claims. The first-quarter reading of gross domestic product growth was revised lower by 10 basis points, to 2.4%. The downwards revision was largely due to automatic government spending cuts. Moreover, continuous unemployment claims rose to 2,986,000 from 2,945,000. We also saw weekly unemployment claims fall short of forecasts. A total of 354,000 initial claims were filled, a 10,000 increase from the previous week’s 344,000 claims. Despite this disappointing US GDP and jobless claims, equity markets for the most part took data in its stride.
Today we could see a stagnation in consumer spending in the US as the Dollar Index is set for a weekly decline. This is further data which could possibly dampen speculation that the Federal Reserve will conclude its quantitative easing programme. Although the US economy over the past few months has strengthened, economists widely expect growth to slow again in the next three months.
Today we also have US Personal Income and Spending numbers as well as Chicago PMI survey. In summary, the data from the US this week does not reflect the sustainable path originally hoped for.
Europe is restricting its planned financial transactions tax. After the realisation of the damage that could be caused to the economy, the decision has been made to cut back the level of tax and reduce its range. The FTT will most likely affect only share trades initially, and not bonds and derivatives as per the original plan. This will also be at a rate of 0.01% per trade, which is a tenth of the initial proposal.
Eurozone confidence grew by more than anticipated this month, with economic morale in the 17 states that use the euro increasing by 0.8 points to 89.4.
In Greece, the first eurozone state to be bailed out and heading for its sixth straight year of recession, sentiment climbed to a five year high, while Portugal and Italy also recorded stronger readings. The OECD said this week that it expects the eurozone economy to contract by 0.6 per cent in 2014.
Europe’s retail collapse slowed down in May, with the sector contracting for its 19th consecutive month. For the eurozone as a whole the index came in at 46.8 up from 44.2 in April but still firmly below the 50 level which indicates growth. The retail index in France edged up to 45.3, a four month high, and up from 43.7 last month. Furthermore, Italy’s jumped sharply from 37.2 in April to 42.1 this month. However, Germany recorded modest retail growth in this month with a score of 51.5, its highest level in a year.
Spain’s economy continued its sharp decline in the first quarter of 2013, contracting by 0.5%. The total amount of goods and services in Spain shrank by 2% in the year to march, after a 1.9% fall in the 12 months before that. Spanish unemployment hit 27% in April.