Dollar claws back some of recent losses after positive retail sales figures

Tom Tong14/Jun/2013Currency Updates

GBP

For the first time in nearly 5 months, sterling broke through its 200 day moving average, climbing to a four month high against the dollar. The pound has gained 5.1 percent in the past three months, whereas the dollar lost 0.6 percent and the euro appreciated 2.4 percent.

Gilts progressed for a second day yesterday, off the back of the World Bank informing that it had cut its global growth projections, thus heightening the demand for safer assets. The U.K. Debt Management Office sold 2.25 billion pounds of government debt maturing in 2032. However fear still surrounds government debt due to looming bond bubble being the biggest threat to world financial stability.

Paul fisher expressed his view that the funding for lending scheme cannot prompt recovery on its own, during his speech to an audience of business representatives; he said the Bank could provide a good environment for lending, but could not actually ensure that it occurred.

EUR

The euro on Thursday slightly extended losses versus the dollar in early afternoon trade after European Central Bank President Mario Draghi defended the ECB’s bond-purchase program. German government bonds advanced, with 10-year securities rising for a fourth day, The 10-year bund yield fell three basis points, or 0.03 percentage point, to 1.54 percent. The annual inflation rate increased to 1.4 percent from 1.2 percent in April, the rate has been below the European Central Bank’s 2 percent ceiling since February. German bonds declined 0.9 percent this year through yesterday, according to the Bloomberg Germany Sovereign Bond Index. (BGER) Italian securities gained 2.6 percent and Spanish bonds earned 5.5 percent, separate Bloomberg indexes show.

Greeks and Spaniards are moving to northern Europe in growing numbers, the Organization for Economic Cooperation and Development (OECD) said on Thursday, as soaring unemployment rates and fiscal austerity erode living standards in the south.

The 2013 Convergence Report on Latvia, published this week by the European Commission, has concluded that Latvia has achieved a high degree of sustainable economic convergence with the euro area and proposes that the Council decide on Latvia’s adoption of the euro as from 1 January 2014.

USD

Yesterday US purchases rose by 0.6% for the month of May, the biggest increase in three months, along with core retail sales (excluding automobile sales) which confirmed the forecast of a 0.3% increase. The Labour Department, yesterday, also reported claims for jobless benefits dropped by 12,000 to 334,000 in the week ended June 8. These positive figures signify that the labour market is getting better and as consumers begin to realise that the employment situation is improving, they are gaining further momentum in their spending habits, despite the uncertainty of the Federal Reserve tapering of QE.

At the back of these results U.S. stocks were also given a lift suggesting resilience in the U.S economy. S&P 500 Index was up 0.87% and The Dow Jones industrial average gained 0.76%. This was coupled with Nasdaq Composite Index which was up by 0.82%. There was also speculation that the federal reserve will signal plans to maintain record low interest rates.

However, while Wall Street stocks moved higher, the U.S dollar fell to a 10-week low against the yen. This extended a selloff due to concerns about a pullback of central bank stimulus and a decision by the Bank of Japan to hold off further quantitive easing earlier this week. These concerns have also fuelled a selloff in global equities, emerging markets, risky bonds and commodities. Therefore, as the US and other western authorities start to withdraw global liquidity, emerging markets risk an interest rate shock. Investors also headed for traditional safe-haven government debt. The benchmark 10- year U.S Treasury note was up 25/32, the yield at 2.1381.

Today there is numerous tier 2 data out of the US which could create minimal volatility but all eyes will be on Producer Price Index and also Consumer Sentiment from the University of Michigan.

Print

Written by Tom Tong

Vestibulum id ligula porta felis euismod semper. Donec ullamcorper nulla non metus auctor fringilla. Cras justo odio, dapibus ac facilisis in, egestas eget quam. Morbi leo risus, porta ac consectetur ac, vestibulum at eros. Donec ullamcorper nulla non metus auctor fringilla.