Risk markets and currencies continue to sell-off amid USD strength after Bernanke comments, though GBP firms after positive retail sales

Tom Tong21/Jun/2013Currency Updates

GBP

Sterling strengthened slightly yesterday against the dollar off the back of retail and mortgage data as both data points stripped their modest expectations.

Mortgage growth has reached a five year high as the housing market grows after the financial downturn. May’s lending rose to £14.7 Billion which was a 17% on the previous year. This beat the prediction for a much smaller upswing according to the Council of Mortgage Lenders. This figure has not been seen since October 2008 however is still far off the peak of the housing market seen in 2007.

The value of sales rose by 3.1% between May 2012 and May 2013. In the retail sector the largest growth came from non-store retailing including on-line sales; this comprised 19.1%.

CBI industrial trends indicated a marginal growth for orders in June, however this was still down from March. That being said, firms still have a positive outlook for the quarter ahead.

The only data released is the tier 3 Public Sector Net Borrowing which has consensus to hit £13.75 Billion. The previous figure was £8.035 Billion. A growth in this figure is seen as bearish for the UK economy as it shows that the amount of debt the country has taken on is increasing.

USD

Data emerging from the U.S market came in predominantly stronger than general consensus yesterday, this was due to existing home sales exceeding expectations, existing home sales amounted to 5.18 million, much better than the estimated 5.01 million where initial jobless claims fell below what was expected.

The U.S. dollar stepped back from a two-week high versus a basket of developed world currencies and is seen on solid footing against especially emerging currencies on expectations of an eventual end to easy U.S. monetary policy.

The predominant concern hovers over the fact that higher U.S. interest rates will most likely prompt a mass migration out of the emerging markets. If that trend was to intensify, it could favour traditional safe-haven currencies such as the yen and the Swiss franc.

It’s become clear the Fed is heading for an exit from stimulus. The era of ‘Bernanke puts’ is over. Those who are doing dollar-carry trades and buying emerging market assets have to unwind their positions.
Against a basket of major currencies the dollar was off a shade at 81.6, below Thursday’s two-week high, though it was still up 1.3 percent for the week.

The pound was little changed against the dollar and euro before a report economists said will show Britain’s budget deficit narrowed in May from a year earlier.

There is no significant data coming out of the U.S market today.

EUR

Yesterday, amidst declining equity markets around the world, we saw EUR weaken against the USD and GBP as risk aversion following Bernanke’s comments and concern for the eurozone region hit the markets. Although weakening against the USD the eurozone saw its most positive PMI results for the region for over a year.

The PMI results came in at 48.9 and, although still showing a contraction, it was the shallowest decrease in output since March 2012. Manufacturing and services were at elevated levels, seeing 16 and 15 month highs respectively. Though both are still suffering from the continents prolonged downturn, only a minor boost would now be needed to push both sectors into generally positive territory. France and Germany both registered an improvement in productions. Output from services and manufacturing in Germany stood at 50.9 for June, the highest in four months. Though French output still showed a significant contraction, at 46.8. In the equity markets, shares in Europe sank, with French Cac down 3.6%, Germany’s Dax down 3.3%, Spain’s Ibex down 3.4% and Italy’s FTSE Mib down 3.1%.

In terms of data releases today, we do not have anything out in the eurozone.

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Written by Tom Tong

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