Spain inches closer to bailout as US data continues to be upbeat

Tom Tong16/Oct/2012Currency Updates

GBP

Yesterday was a fairly quiet day in terms of data. There were no major reports released by the UK so GBP/USD’s up and down movement was mainly due to the result of the mixed data that came out from the U.S. While U.S. retail sales came out particularly better than expected, the other manufacturing data failed to meet analysts’ forecasts.

Today could be a very volatile day for the pound with Tier 1 data due for release at around 8.30am. The Consumer Price Index is projected to show that inflation improved to 2.2% from the previous month’s 2.5%. PPI figures are scheduled to report that input prices remained flat while output prices rose 0.3%. This set of data could see the pound strengthen across the major currencies.

USD

There were some Tier 2 data released but they failed to have any major effect as EUR/USD closed just higher, while GBP/USD finished just below its opening price. Retail sales released yesterday increased by 1.1% in September, which can be taken as a sign of strength in consumer spending. For today, we have another round of second tier data due for release at 12:30 pm, with the monthly CPI report.

Expectations are that core inflation will come in at 0.2%, while CPI is forecast at 0.4%. These figures coupled with the GBP data could create a great deal of volatility.

EUR

There were no data releases out of the eurozone yesterday.

Spain remained the focus of attention yesterday with borrowing costs on 10-year bond yields rising to 5.77%, not quite the 7% threshold (which is seen as an unsustainable level) but this could lead to a Spanish bailout happening sooner rather than later.

Today we have a whole host of data being released. The German ZEW economic report for October is expected to show an improvement, whilst, the EZ ZEW Economic index is expected to come in at -1.1.

Inflation reports are also out today. CPI is expected to come in at 2.7% for September, whilst the core figure is expected to come in at 1.6%. Let us not forget that Mario Draghi stated that inflation pressures have increased in the eurozone; therefore higher than expected readings could see further interest rate cuts.

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Written by Tom Tong

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