Global markets continue to fall back amid fears over Chinese growth and Fed QE policy

Tom Tong25/Jun/2013Currency Updates

GBP

Last week we saw sterling strength come to an abrupt end, with recent data out of the UK offering little help to counteract the renewed USD strength. However, yesterday we saw a break in momentum, as GBP/USD rose from the previous session. Given the the lack of data out yesterday and a midday recovery in US equities, we saw Cable ending Monday slightly higher than anticipated, breaking its recent trend.

Today’s major events for sterling include the Inflation Report Hearings and BBA Mortgage Approvals. BBA Mortgage Approvals is a leading indicator of housing activity in the UK. The indicator has been slowly moving higher, registering 32.2 thousand last month. The markets are expecting another slight gain in the upcoming release, with an estimate of 33.1 thousand.

In other Macro news, markets suffered another heavy sell-off on Monday, sending the FTSE 100 to levels not seen since the start of the year, as concerns over a slowdown in China and last week’s Federal Reserve policy meeting continuing to hit markets across the globe.

EUR

Monday was a relatively quiet day with the only major data out from the eurozone, being German IFO Business Climate (based on a survey of 7,000 executives). The readings were 105.9 up from forecast which reflects that trading in Germany is rising. However, on the whole, the current business situation is not showing great signs of positivity, although these readings do show that optimism is slowly creeping in about future business developments. With many countries in the eurozone steeped in a permacession, particularly in southern Europe, Germany on the other hand is set to overtake the UK as the biggest Europe cruise market, with an increasing number of employment.

Concern was ignited into the European stock market yesterday after Goldman Sachs cut China’s growth forecast, falling for the fifth day, erasing their gains for the year. Chinese stocks fell the most in four years, signalling a bear market as the world’s second largest economy could be possibly facing a credit crunch, and as a result we should expect to see volatility and further uncertainty. Since the Fed’s Ben Bernanke commented on the gradual tapering of US QE, the equity benchmark has fallen 11 percent since May 22, and this was reinforced further yesterday as the Stoxx Europe 600 Index declined 1.7 percent to 275.66.

Today is set to be another discreet day for the euro, with no provocative data reflecting Europe

USD

The US dollar climbed to its highest in almost three weeks yesterday against numerous currencies off the back of mounting expectations that US monetary stimulus will be tapered in the near future.
The dollar has advanced on all other major currencies in light of Chairman Ben Bernanke making it clear last Wednesday that the US central bank may reduce its monthly $85 billion asset purchasing scheme should the economy continue to see improvement.

The dollar index had increased 0.1 percent in late trading, when compiled with the 2.2 percent rally seen last week; this presents its largest weekly rise since November 2011.

10-year US treasury notes were also aided by Chairman Bernanke’s comments, the benchmark yield climbed to its highest in nearly two years yesterday with interest rate differentials moving in support of the greenback.
However, after Dallas Fed President Richard Fisher commented yesterday that the conclusion of quantitative easing is still far away, the dollar came off its highs.
According to surveys by Bloomberg, the US is estimated to grow 2.3% and 2.6% within the next two quarters.

This week we shall see speeches from President John Williams of the Federal Bank of San Francisco, President Sandra Pianalto of the Federal Bank of Cleveland, President Jeffrey Lacker of the Federal of Richmond and President Dennis Lockhart of the Federal bank of Atlanta, with Core Durable Goods Orders, Consumer Confidence and New Home Sales out today.

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Written by Tom Tong

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