Sterling climbed to a 7month high against a basket of major currencies in an otherwise quiet day ahead of FOMC minutes from the US today

Tom Tong21/Aug/2013Currency Updates

EUR

Yesterday we saw construction output (YoY) coming in at a 0.2 % increase and (MoM) coming in 0.8% improvement in comparison to previous figures. Thus, helping the Euro to climb to a six and a half month high against the green back. The Euro has also developed a 0.46% increase against the Sterling ahead of housing and GDP data in the UK later this week along with consumer confidence and manufacturing results for the Eurozone.

Construction figures out of the Eurozone rose by 0.7% between the month of May and June. June is the third consecutive month we have seen the construction output increase within the Eurozone. However, this figure is still down 3% in relation to this time last year.

We have also seen for the first time Germany’s finance minister state that Greece will require another bailout to plug a forthcoming funding gap. Mr Schaeuble’s comments place him as one among many who believe Greece will have to be given new funding to balance its books. The sentiment from Europe’s biggest economy is that it has contributed its fair share to help Greece. Also the stance on any further bailouts coincide with the upcoming elections and so we are likely to see Germany maintain a strong opinion on any further bailouts in the coming weeks.

There is no economic data expected out of the Eurozone today.

GBP

Sterling was up to a seven month high against a basket of major currencies and traded at a near two month high against the Dollar which was supported by a recent improvement in economic data out of the U.K. Thus, indicating that interest rates may rise sooner than the Bank Of England initially anticipated.

Sterling was up 0.2% which was the highest since mid-June and continuous improving economic conditions in the UK have made it increasingly difficult to convince financial markets that interest rates would remain at current low levels until 2016.

Economic data set to be released out of the U.K includes Mortgage approvals for 16 August, Industrial Trends Survey expected to improve from -12 to -8 and the Public Net Sector borrowing for June expected to come in at -5.6 billion as opposed to the previous 10.234 billion.

USD

Yesterday was a quiet day for the Dollar with the only significant data being released was the Tier 2 Chicago Fed which came in previously at -0.23 and made a slight gain to -0.15.

Today will see a much busier day for the dollar as FOMC minutes are being released, the Central Bank is expected to begin tapering its $85 billion QE programme. We expect the July meeting to show that committee members viewed the improvement in labour markets and reduced downside risk. Overall we expect the minutes to be sending out the same message – hawkish on tapering and dovish on rate hikes.

Amidst news that the tapering may begin in September, 10-year US treasury yields rose to a two year high of 2.90%. Also out today we have home sales data, expected to show a significant increase from -1.2% to 1.4% (MoM), along with a number of low tier data releases due to be seen around lunch time.

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Written by Tom Tong

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