USD closed higher against a basket of major currencies while GBP was little impacted following Mark Carney's speech yesterday

Tom Tong29/Aug/2013Currency Updates

GBP

According to the CBI data released yesterday from which is a survey of 125 firms, showed that high street sales growth accelerated at the fastest pace in August since November 2012. Along with growth in wholesale trades, this was the second consecutive quarter growth with retailers expecting another successful month in September.

However, the main news from the UK yesterday was Mark Carney’s first major public speech as Governor of the Bank of England. The speech had little impact on Sterling as Carney confirmed many expectations that interest rates will not rise earlier that forecast and that they will remain low for some time.

Although he was optimistic about the growth of the economy and amid that jobless rates will fall, he further went on to add that unemployment rates would not fall quickly enough to 7% for them to raise the current base interest rate of 0.5%. He also stated that the Bank of England is looking to ease liquidity rules to boost lending to consumers and businesses by the largest UK banks. He stated ‘In particular, we have required banks to repair their balance sheets so that their capital ratios at least reach a threshold of 7% by the turn of year’.

There is no major data out of the UK today, with only the GfK Consumer Confidence report set to have a minimal impact.

EUR

Despite the Eurozone’s 18-month recession drawing to a close in the second quarter of 2013, bank lending continues to recoil, down 1.9% in July. This is the swiftest drop in lending in the region since the single currency was introduced.

Data released yesterday by the ECB showed a retraction of 0.2% in growth in the Eurozone’s money supply since June. This figure rarely dipped below 5% post global recession.

It has been proposed by the ECB that interest rates remain at their existing low levels, pending the progression of the economy.

Today we await the release of the German unemployment rate, expected to show a 3rd month of decrease for August – forecast at 0.2%. We will also see German Consumer Price Index and an Italian 10-year bond auction.

USD

The Dollar edged higher against all of its major counterparts yesterday as investors watched for word about possible military action against Syria, leading to a rise in flows in the safe-haven currency. This rise was also related to the possible upward revision to the pace of quarterly U.S. economic growth with analysts upwardly revising their prediction for the GDP figures released today. The Dollars gains yesterday were partly stalled with pending home sales MoM coming in worse than expected at -1.3% against forecasts of 0.2% as well as from the speech made by the Governor of the BoE Mark Carney.

The recent moves in major foreign currency pairs have been modest compared to the sharp damaging moves in the emerging market currencies. These were first hit by outflows of funds as investors’ positions for an eventual end of the monetary easing by the U.S federal reserves have now been furthered with the heightened geo-politcal risks which has made investors more risk adverse.

Investors will be looking to the US today with a number of high impact data releases coming up with expectations that these will come in above forecast, with GDP expected to revised up from 1.7% to 2.3%. We will also see weekly claims for unemployment benefits, a key indicator for the Taper forecast in September, along with Personal Consumptions Expenditures Prices and some further low impact data.

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Written by Tom Tong

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