Pound comes under increased pressure after current account shows widening deficit
28/Jun/2013 • Currency Updates•
The Greenback added small gains yesterday after positive data was released from the US. Most notable was the pending home sales index, which is a gauge of housing activity, reaching its highest point in more than 6 years. In addition to this there was further pleasing data with claims for unemployment benefits in the US declining by 9,250. The number of people receiving welfare payments for joblessness fell from 2.98m to 2.97m. While this data is not ground-breaking it adds further momentum to the strength in the US employment sector. It remains to be seen if these improvements are enough speed up the timescale that the Fed will reduce quantitative easing.
New York Fed President William Dudley and Fed Governor Jerome Powell attempted to quell the market nerves about recent comments on the end of tapering by stating that recent market expectations for a earlier rate rise are ‘quite out of sync’ with the statements and expectations of the policy making Federal Open Market Committee.
Today we see the Chicago PMI and the University of Michigan consumer sentiment index.
Yesterday we saw the euro increase its gains against sterling reaching a weekly high, whilst strengthening against the dollar even with solid economic indicators out of the recovering US economy which helped push the Greenback higher against other major currencies. This sign of strength emerged following the European Commission monthly index of eurozone business and consumer confidence which moved to the highest level since May 2012. An additional factor that improved sentiment on Europe was the German Labour report had improved 0.1% opposed to consensus. All this came about despite recent statements from European central bankers pledging to keep monetary policy accommodative.
There are CPI figures are released later this afternoon out of Germany and Italy but no other major economic data out of Europe is expected.
Sterling fell to its lowest in more than three weeks, after an unexpected downward revision to UK year-on-year first-quarter growth. Although the pound managed to hold steady against the Japanese yen, it resumed its losing streak against the Greenback as GBP/USD dipped dangerously. Yesterday the data that came out of the U.K was mostly weaker than expected leaving the current account balance showing a larger deficit of 14.5 billion compared to its far lower estimation of 11.9 billion. Business investment also displayed some weakness for the first quarter as the figure had been revised down to display a 1.9% decline, whilst the GDP figures for the 1st quarter was left unchanged.
Separate data showed U.K. house prices increased for a second month in June. U.K. gilts advanced and the pound slid yesterday after data revisions showed gross domestic product shrank more than previously estimated from its peak in 2008 to the depths of the recession.
There are no major reports due from the U.K. today but do keep your eyes peeled for the release of the Nationwide HPI report which reflects housing price inflation. A 0.4% uptick in house prices is expected for the month of June.