Sterling falls back heavily against dollar and euro, ahead of crucial FOMC, BoE, and ECB meetings

Tom Tong31/Jul/2013Currency Updates

GBP

The pound rose briefly yesterday after figures showed lending to small and medium sized British firms grew at the fastest pace on record in June while a survey showed strong retail sales in July. These gains proved short lived though as sterling fell against a basket of currencies. We await the monetary policy meeting later this week at which the Bank of England is expected to reaffirm its commitment to low interest rates for a prolonged period. Under the new guidance of Mark Carney the central bank is expected to lay out plans for giving ‘forward guidance’ on monetary policy which could weigh on the pound.

In other news the British economy was the most upbeat of any major European country in July, shooting upward in the past month official EU statistics show. GfK’s consumer confidence barometer for the UK also recorded a strong upswing, rising to minus 16, its highest level since April 2010. This measure although still negative has risen 11 points in the last quarter.

No news out of the UK today

USD

U.S consumer confidence decreased to 80.30 in July 2013 from 82.10 in June. This was weaker than analysts’ expectations, who were predicting 81.3. Prior to the latest release, consumer confidence beat Bloomberg expectations the last 3 times. Overall confidence levels remain at levels unseen since 2008. U.S consumer confidence is an important data point due to consumption comprising roughly 70% of U.S GDP; therefore, it is a solid measure of total health in the U.S economy from a consumers view. The results comprise a survey put to 3000 consumers quizzing there thoughts on current business and employment conditions, alongside there view for the next 6 months.

However, the dollar rallied as a result of poor figures out of Europe, with large positions being taken in expectation of Friday’s non-farm payrolls.

The Fed will complete its 2 day open market committee meeting today. The latest FOMC statement will be released which will update us on the direction of monetary policy. The market is widely expecting the benchmark interest rate to remain unchanged. Since May, feverish debate has centred on the FED’s approach to the 85 bln monthly tapering measure via purchase of treasury and mortgage bonds. With the U.S still far off the 6.5%-7.0% range targeted to reduce QE. Year end target is 7.3% At present unemployment figures are sitting at 7.5%.

The most important release of data this month will be non farm payrolls on Friday, with Bernanke scheduled to comment after the release this is going to be a monumental day for global currency markets. Widely expected is a good report, hence the dollars strength and traders generally bullish sentiment.

EUR

Confidence data out of the eurozone yesterday indicated that Europe’s economy was starting to show increasing signs of revival, in the aftermath of six quarters of contraction. According to an index which takes into account both consumer and executive sentiment, confidence levels reached a 15 month high in July, rising to 92.1 from 91.3 in June, thus raising hopes that the currency bloc will pull out of a recession in the second half of the year.

However despite these positive signs emerging from the eurozone, the 17-nation economy is continually blighted by its levels of unemployment. Eurostat, the EU’s Luxembourg based statistics office is due to release data today showing that the Jobless rate remained at 12.2% in June, equalling the levels reached in May which were the highest since records began. Additionally, German retail sales fell by 1.5% in June, the biggest drop of the year, and a blow to hopes that household spending will maintain growth in Europe’s largest economy in in a year where exports have faltered.
Significant data out of the eurozone today includes unemployment figures from Germany, as well as the CPI figures for the eurozone as a whole.

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Written by Tom Tong

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