All eyes to be on QE in the UK and US in September

Tom Tong01/Sep/2011Currency Updates

GBP

Sterling struggled on Wednesday due to month-end rebalancing sales against the dollar, while a solid reading of the U.S. manufacturing sector boosted the U.S. currency versus the euro and the pound. The UK currency struggled across the board, and risked more downside due to a run of weak UK economic data and on-going speculation that the Bank of England may consider more monetary easing.

The pound ended the month 0.8 percent lower against the dollar after a run of weak economic data, such as last week’s figures that showed only slight growth in the second quarter, which has knocked the pound from the month highs in August, when some investors looked at the UK as a relatively safe haven from the debt concerns across the EU and the United States. In September traders will be looking at continued talk by policymaker Martin Weale that the UK central bank will not rule out more quantitative easing if the economy continues to suffer, highlighting the possibility that the UK central bank may be preparing for asset buying. Analysts said such speculation would be a drag on the pound, as another round of massive asset buying could flood the market with pound liquidity and drive the currency lower.

EUR

The euro was locked in a stalemate versus most counterparts on Wednesday, but weakened against the Swiss franc as Swiss authorities refrained from taking additional measures to weaken their currency. The Swiss National Bank has talked up intervening in their mid-week sessions during August to keep the franc from moving back toward this summer’s record highs.

Eurozone inflation remained unchanged in August, after slowing from its peak seen in April, while the unemployment rate stayed stable at an elevated level in July, official data showed Wednesday. Inflation continues to stay above the central bank ceiling and the high unemployment suggests possible downward pressure on underlying inflation from wage growth.

USD

Despite many analysts saying a third round of quantitative easing may be in the works for September, the dollar held its ground against most majors on Wednesday as traders looked at some positive data out of the states.

US factory orders rebounded in July following a decline in June, according to a report released by the Commerce Department yesterday, with orders rising by more than economists had anticipated. New orders for manufactured goods came in at $453.2 billion in July, representing a 2.4 percent increase compared to the previous month.

Employment in U.S. private sector saw continued growth in the month of August, according to a report released by payroll processor ADP on Wednesday, although the pace of job growth fell short of economist estimates. The report said that private sector employment rose by 91,000 jobs in August following a downwardly revised increase of 109,000 jobs in July. Economists had expected employment to increase by about 110,000 jobs compared to the addition of 114,000 jobs originally reported for the previous month.

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Written by Tom Tong

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