US GDP figures dampen USD demand

Tom Tong27/Jun/2013Currency Updates

GBP

The pound weakened against the dollar and euro yesterday and overnight as George Osborne gave his comprehensive spending review in the UK. Osborne targeted the cancellation of automatic pay rises for civil servants in a shake up of public sector pay, whilst also targeting welfare rules and infrastructure spending. Aside of Osborne’s speech it was a relatively quiet day for sterling. The main data release of importance in the UK today is the GDP figure.

EUR

Mario Draghi spoke yesterday concerning the future of the euro stating that he believes that the ECB will continue to adopt a policy of Quantitative Easing which is directly parallel to the Fed which is now looking to end the bond purchase programme. In Paris, Draghi said that “We have an open mind about all other possible instruments that we may consider proper to adopt” adding also that a possible exit to this program remains “distant”. Also Draghi stated that governments must look to fix the problems in their own houses instead of relying on Central Bank intervention for the recovery of EU economies.

The gap between Germany and the rest of the eurozone widened as German Consumer Confidence was released at 6.8 which was the most robust reading in 6 years. This is in stark contrast to the French economy which has shrank by 0.2 in the last quarter.

In the eurozone today Germany is releasing Unemployment figures, which has consensus to go down to 8K from 21K in the previous month, along with several other tier 3 data points.

USD

The US economy grew less than forecast during the first quarter of this year, according to the Commerce Department data released yesterday. With analysts initially expecting a growth figure of approximately 2.4%, Wednesday’s revised reading of 1.8% prompted speculation over whether the Federal Reserve may reconsider its intention to taper its $85bn per month bond purchasing programme. The greenback fell versus 14 of its 16 major peers as Bank of Richmond President Jeffrey Lacker speculated that the Fed is far from reducing its bond holdings.

With the greenback’s recent string of gains on the back of Fed Chairman Ben Bernanke’s statement last week, yesterday’s figures provided a mild setback and ended six straight days of gains. With FOMC members Dudley and Powell speaking this afternoon, focus is surrounding whether they will echo the Chairman’s rhetoric or echo other speakers this week and dampen the market’s response to potential tapering.

Today, in terms of top tier data releases, the Department of Labour releases last week’s Unemployment Claims data which many analysts are expecting to show an upside from the 20th July figures. We also have the Consumer Spending figures which are expected to have increased in May after falling 0.2% the previous month. Additionally, from the housing sector, the National Association of Realtors is releasing the Pending Home Sales (m/m) figures this afternoon. With housing playing such a central role in the US economic recovery, these figures represent another gauge of economic health. The figures are expected to show an increase from the last reading of a 0.3% increase to 1.1%.

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Written by Tom Tong

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