Confidence within the Eurozone continues to diminish, whilst the UK gathers pace

Tom Tong23/Jul/2013Currency Updates

GBP

Yesterday’s session was quiet with no data releases from the UK. Sterling continued its trend for the fifth day, after strengthening against the euro and dollar making this its longest winning streak in almost three months. David Cameron injected optimism after stating an improving economy may allow the government to cut taxes. The financial services are expected to create a further 250,000 jobs and fuel a 2-3% increase in GDP.

Britain’s recovery remains bumpy, sterling has strengthened 2.1% in the past three months. We are forecasting the British economy to expand at a faster pace in Q2 of this year with GDP due to be released on Thursday.

The only data of note out this morning is the BBA Mortgage Approvals for June, which is forecasted to jump from 36.1k up to 38.5k. This report is considered as the leading indicator of the UK Housing Market

EUR

Analysts eluded yesterday that the critical condition of the Eurozone could re-inflame through the summer, off the back of fast eroding confidence installed within the last year – contributed to by uncertainty surrounding bad bank assets, political conflicts, and mounting fears that the ECB are unable to ensure market stability.

The fight for recovery in the Eurozone has highlighted a clear fragmentation in the speed to which different states are progressing, with Britain beginning to pick up speed.

We may observe over the past two summers that the situation has intensified, with Greece receiving a second bailout in 2011, and with escalating borrowing costs, the Spanish and Italian governments nearly encountered the same fate.

We may see Portugal requiring another bailout as their government has been striving to come up with a plan to reduce its deficit.

The Italian government has been criticised over its apparent shaky commitment to ensuring its budget is in order, whilst the Spanish government, still in recession, is tackling a corruption scandal.

In Greece, the on-going pains as a result of intense reforms were highlighted by teachers striking in the Capital.

ECB head Mario Draghi’s Outright Monetary Transactions Policy, though yet to be fully implemented, promised to do “whatever it takes” to protect the Eurozone, and thus acted as a sturdy net to comfort investors when announced last year. However the effect this policy initially had may be diminishing, as the economies have not been improved and are yet to recover.

Eurostat’s new figures show Eurozone debt worsening regardless of the efforts of governments. Eurozone debt in the first quarter of the year rose to 92.2% of GDP, an increase of 1.6% from 3 months prior.

The highest level seen remains in Greece with 160.5%, with Italy at 130.3% and lastly Portugal with 127.2%.

UK research organisation Ipsos Mori have produced low spirited figures, indicating numerous European consumers remain dubious regarding any recovery soon. The report showed Spain with 4%, France with 5%, and Italy with 6%, in terms of belief that their economy is doing well.

USD

A lack of economic reports from the U.S. left the dollar vulnerable to market sentiment. Unfortunately for the dollar, news was negative therefore weakening the dollar against most counterparts. Sterling experienced fair gains against greenback. Price action seems to be a continuation of what was seen last week.

Data of significance yesterday was the US June existing home sales which fell 1.2% to 5.08m. This was below analysts expectations of a rise in home sales of 0.6m to 5.25m units for June. Where this data holds market movement potential is the fact that it will lower Fed officials expectations for economic activity, and thereby delays the call for the equally dreaded and anticipated taper. Whilst notable this data is unlikely to ensue a change in sentiment from the fed. Watch this space for further data releases and to see how Bernanke and his clan reacts. Interestingly, a Reuters poll yesterday showed 33 of 56 economists are expecting the Taper to begin in September.

Today sees a quiet day in terms of data out of the US, with the one point of tier 2 being the month on month Housing Price Index. A high reading could see dollar regain some of the ground lost yesterday from the Existing Home Sales. The Redbook Index is also due for release today.

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Written by Tom Tong

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