Dollar continues to fall amid fears of global tapering of QE, led by yen

Tom Tong12/Jun/2013Currency Updates

GBP

UK house sales rose to their highest level for more than 3 years as Rics released figures yesterday, despite remaining well below its peak it provides further information of momentum in the housing market. Sales are forecasted to rise.

Manufacturing production figures released yesterday flattered to deceive, with the MoM manufacturing activity falling 0.2%, compared to a 1.1% rise last month.

The GDP Estimate released by the NIESR was forecast at 0.8% for the last 3 months but disappointed at 0.6% for the quarter.

Markets will watch with caution the Claimant Count Change for May which is expected to inject volatility for today’s session as the previous was recorded at -7.3k and consensus standing at -5.0k. Other releases of note are Average Earnings Bonus and ILO unemployment rate both expected to remain largely the same.

These releases add weight to our revised forecast that we will see a faster rate of appreciation of sterling against the euro, and considerably slower rate of depreciation against the US dollar.

USD

The dollar has continued the trend of the last week by weakening against sterling and the euro. After the largest fall in over 3 years against the yen the previous day, the dollar started to claw back some of its losses. This is after the BOJ decided not to extend maximum duration of its fixed rate loans. Therefore leaving their bond markets open to more volatility.

The dollar has been supported in expectation that the US Retail Sales Report, which is released tomorrow, will be positive. Analysts are expecting an increase in the region of 0.4%.

Markets globally suffered a dramatic fall in confidence yesterday over the impending threat that Governments are planning to end their Quantitative Easing programs before global growth is sufficient. Real yields on 10 year treasuries finally turned positive yesterday, after 18 months of being negative. This highlights the belief that the markets’ recoveries are dependent upon QE. Due to this the US Fed might be forced into taking easing action as soon as next week to reassure the market.

It is a quiet day in terms of top tier data released from the States today, but attention will be on the 10 Year Note Auction.

EUR

The euro made gains against the dollar yesterday as the Greenback continued to lose ground it had won at the end of last week.

It was a relatively quiet day for data releases as Germany’s Constitutional Court kicked off a two-day hearing on the legality of the ECB bond-buying programme, which has helped to sooth the eurozone debt crisis. A ruling is expected later this year.

Elsewhere, Greece was subject to the humiliation of becoming the first developed nation to be cut to emerging market status after seeing its local stock market plunge by 83% since 2007. Greece is also planning to shut ERT, the government run television network, in a continued drive to cut costs.

Today we have Spanish, Italian, French and German CPI figures in an otherwise sparse economic calendar.

ZAR

With the surprising news that South African mining output shrank, the rand dropped to a 4 year low. Mining production decreased 0.4% (whereas the expectations were for a slight increase). Add to this the expectations of increasing violence around the mines and the forecast is for tough times for the South African economy.

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Written by Tom Tong

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