Risk asset sell off as the Fed look towards stimulus.
31/Aug/2011 • Currency Updates•
Sterling encountered heavy selling pressure on Tuesday after Consumer Credit and Mortgage data highlighted the faltering growth within the U.K Economy. The Pound incurred losses against a basket of currencies with investors now firmly focusing on upcoming fundamental data releases. The Bank of England consumer credit data showed that individuals appetite for borrowing waned in July while UK net mortgage lending showed a small increase of 0.7 billion pounds. Although the data releases were largely in line with expectations it is not detracting from the economic recovery being extremely slow which is capping sterling gains and creating selling pressure.
The Euro fell against its most traded counterparts during Tuesday trading with the exception of Sterling as speculation grew that the European Central Bank has finished raising interest rates. The reason for the potential slowdown with interest rate hikes comes at a time where the sovereign debt crisis is severely limiting economic growth. Jean Claude Trichet had stated that the Central Bank will be reviewing its assessment of inflationary risks with the ECB to discuss this further when they meet on September 8th. If interest rates are held at 1.5 percent in September we may see the Euro weaken further. Today’s major economic data will be the Unemployment rate figures for July which are forecast to remain flat at 9.9% coupled with the Consumer Price Index release for August which is due out in line with expectations at 2.5%
Investor confidence in the U.S fell to its lowest level in two years with the Americans outlook on employment and incomes souring. The conference boards index fell to 44.5 which in turn was the weakest reading since April 2009 and massively down from the 59.2 revised reading in July. This decline in investor confidence in the U.S saw safe haven demand increase with risk assets such as Sterling and the Euro selling off. Last night’s FOMC minutes have shown some members concerns over the high unemployment and sluggish growth in the U.S, which in turn has increased the possibility of further stimulus being added when the fed next meet in September. Today’s key economic data will be the ADP employment change which is forecast to show a decline from 114k to 105k.