Sterling gains but for how long will it last
20/Oct/2011 • Currency Updates•
Good day for GBP yesterday, whether or not the pound can push on will depend on market sentiment and UK retail figures, which are released early this morning.
A flat reading is expected for September, which would be a positive reading following the -0.2% of August. A better than expected reading could lead to GBP further extending its gains. Increased consumer spending and lower interest rates would give the British economy a much needed kick start.
Yesterday’s BOE minutes revealed all eight members of the MPC voted to expand the asset purchase programme and to keep interest rates on hold. No real surprises here so GBP managed to hold ground and push on against its counterparts.
Rumours and speculation did the euro a lot of favours yesterday, but in the end the euro fell and ended lower against its major counterparts.
The day began with Wolfgang Schaeuble stating that the European Financial Stability Fund could see a 1 trillion euro increase. This news was quickly quashed by the German Finance Minister. Adding to the doldrums was President Sarkozy announcing that talks to expand the EFSF had reached an impasse and were stuck. This news did little to help the euro and dragged the currency lower.
Today we should see more conflicting comments from speculators and euro officials. With the market so hot on the developments in the Eurozone any statement from a Eurozone big wig could see the euro push in either direction.
In terms of data, German PPI is released this morning followed by Eurozone consumer data at 2:00pm GMT.
An up and down day for the USD yesterday as it lost ground against GBP, it didn’t move against the JPY and rallied against the EUR after initially starting the day on the back foot.
With the EU summit this weekend optimism swept the market in anticipation to France and Germany finally pushing ahead with the expansion of the European Stability Facility. As a result the USD was sold off as risk appetite returned to the market.
However, later in the day concerns that Germany and France would not be able to agree the deal that the markets are hoping for led to risk aversion returning to the market.
With regards to US data, consumer price index came in as expected at 0.3%, however, the key part of the report only showed a 0.1% gain, as opposed to a 0.2% rise as forecast.
Housing stats were up, showing an annualized figured of 600,000, however building permits fell from 630,000 to 590,000.
Today is a big day on the day front with three import reports coming out of the US. Firstly, we see weekly jobless claims released at 12:30pm GMT, markets are expecting a fall from 404,000 to 401,000. Secondly we have existing home sales at 2pm, once again the market is expecting a fall from 5.03 million to an annualized figure of 4.94. Lastly we have the Philly Fed, out at the same time as existing home sales, markets are expecting an improvement here, a reading of -9.0 versus -17.5 from last month.
Given how risk has driven the market positive releases could see the USD being sold off.