Strong US economic figures further boost USD
26/Jun/2013 • Currency Updates•
The pound traded in a tight range yesterday as the country waits on the Chancellor of the Exchequer spending review today. George Osborne is to set out where an additional £11.5bn of government cuts will come from with most Whitehall departments facing reductions from 8% to 10% in 2015-16. The government has promised to not cut health care, schools, and overseas aid, but most other departments prepare for a fresh swathe of cuts. There will, however, be increased infrastructure investment with details to be announced by Treasury chief secretary Danny Alexander.
Departing Bank of England Governor used his last public appearance to warn of the effects of the Fed’s quantitative easing and the effect of low rates on mortgages. King stated that if interest rates returned to their pre-crisis levels now, then new mortgage holders would quickly be unable to make repayments, and that keeping long term interest rates low would mean households will be able to absorb those levels of debt. To balance the argument, he did state that if ‘interest rates go back to more normal levels than those same households will find themselves with levels of debt that won’t look so attractive, given the new lower level of house prices’.
Today we we have the bank of England Governor’s speech this morning as well as the Financial Stability report in addition to George Osborne’s Government Spending Review at 12:30.
Despite a turbulent time of late in world markets, the dollar continued its bullish trend from last weeks Fed meeting as a raft of data released yesterday proved the strength of the US economy and reassured investors that any talk of tapering the stimulus package is not premature.
The dollar rose against the euro for a fifth straight day yesterday, predominately of the back of much stronger than forecast durable goods orders, meaning that orders made by factories and the manufacturing sector were much stronger in May than expected. Adding to the dollar’s lift was consumer confidence, which rose to its highest level since 2008, as more respondents now expect an increase in jobs and an improvement in business conditions over the next six months. It is worth noting here, however, the cut off date for the survey was 13th June when the S&P 500 index was still at 1,640 and there were no rumbles yet of a possible credit crunch in China or a global bond bubble.
Later in the session the Housing market got a lift as the S&P/Case-Shiller home-price index climbed 2.5% in April, the biggest monthly growth rate on record and in the year to April prices rose by 12.1% the largest increase since 2006.
Today and tomorrow will see more key data from the world’s biggest economy as GDP figures are released today and initial and continuing jobless claims come out tomorrow. These will be closely watched and scrutinised as investors and analysts attempt to predict the Fed’s next move and weather taper or tempering of the QE3 stimulus package will be hastened or delayed.
EUR/GBP has drifted lower in the open from an overnight high to test the month’s low as we approach a number of economic variable releases on today’s calendar for the UK and US.
Yields for Spain and Italy sovereign debt spiked in the primary market on Tuesday as the federal reserve’s ‘tapering’ plans continue to concern investors about the eurozone’s peripheral economies falling back deeper into the crisis. Spain issued Treasury bills for €3.07bn, just above its €3.0bn maximum target, on lower demand and higher yields.
Finance ministers from the European Union (EU) have failed to reach an agreement on bank recovery and resolution, though they plan to meet up on Wednesday for a last-ditch effort before the European summit begins on Thursday. European leaders had been seeking to reach an agreement on the process before the summer break but differing views, particularly on the status of uninsured depositors, blocked the signing off on new rules.
Its a quiet day for data today with the majority of news coming out from the US.