Dollar sells off heavily after ECB and BoE decisions, ahead of crucial US employment figures today
07/Jun/2013 • Currency Updates•
The pound has experienced a strong performance in the last few days, pushing GBP/USD into a more bullish outlook, bringing about greater expectations of further upside momentum in the coming period. This came on the back of impressive services PMI figures. Following the release of the Halifax House Price survey yesterday, we saw UK property prices increasing by a better than expected 2.6% during the three months to the end of May. We have also seen car purchases accelerate to pre-crisis levels in May; figures according The Society of Motor Manufacturers and Traders show new cars in May expanded by 11 per cent.
Recent economic figures has in fact now led to subsequent revisions to the UK growth forecasts. The British Chamber of Commerce upgraded it’s GDP growth forecast from 0.6% to 0.9% in 2013, from 1.7% to 1.9% in 2014, and from 2.2% to 2.4% in 2015.
Yesterday after nearly 200 gatherings, Mervyn King attended his final policy meeting as Governor of the Bank of England. As predicted, the central bank’s Monetary Policy Committee retained its current target for asset purchases and held the key interest rate at a record low of 0.5 per cent. On King’s exit, former MPC member Kate Barker suggested King would be pleased to be leaving at a point when growth is picking up in the U.K.
Yesterday saw the euro improve to a three month high against the dollar on the back of Mario Draghi commenting that the eurozone economy should recover this year. The euro’s ascent was propelled by the decision of the ECB to not cut its main refinancing rate in conjunction with Draghi stating there was no need to establish supplementary stimulus measures.
Spain saw a varied response on Thursday’s triple bond auction, with investors showing more interest towards the shorter term paper with guaranteed by the ECB. The sale displayed strong interest, with buyers seemingly disregarding the ominous economic future of Spain, in the pursuit of returns against the backdrop of extremely low yields obtainable from the region’s higher rated sovereign debt.
As a result, the treasury sold 4.03 billion euros from the auction, marginally higher than its maximum target.
French 10-year borrowing costs rose from a record low yesterday off the back of looming uncertainty with how long the U.S. Federal Reserve will remain with its current stimulus programme.
These debt sales were brought about as the ECB held its monthly policy meeting, with the bank foreseeing its benchmark interest rate at a record low of .5%, in line with predictions.
Germany, Europe’s largest economy, failed to increase in strength with factory orders falling more than predicted in April.
Yesterday we saw jobless claims decrease by 11,000 to 346,000 indicating companies are confident demand will be sustained in the face of federal cuts and tax increases.
Mario Draghi (President of the ECB) yesterday ruled out actions to stimulate the region’s economy and, as a result, U.S stocks were flat and failed to hold onto a rebound off a steep two-day decline. This was coupled with the heavy sell off of the greenback, which we saw yesterday afternoon, amid speculation that today’s Non- Farm Payrolls data will be worse than expected.
The Standard & Poor’s 500 Index reached a one month low of 1,601.49 after dropping 0.5%. The Dow Jones was also down 0.51% at 14,883.66. These declines caused investors to shift to safe haven government debt and as a result Treasury yields dropped 6 basis points to 2.03%, after having have rose as much as 4 points earlier. Over the last few days optimism has slightly diminished about the US economy which has been reflected in the drop in the Dollar Index.
Today we are going to see Non – Farm Payrolls out of the US which shows the change in the number of employed people during the previous month. Even though results are projected to show worse than previous, it will provide a clue into how long the Federal Reserve will keep its stimulus intact.