GBP trading at 12-week high against the USD

Tom Tong10/Sep/2013Currency Updates

GBP

The UK economy is “turning a corner” and “showing tentative signs of a sustainable recovery” according to Chancellor George Osborne. The UK Chancellor went on to state that the tightening of market conditions too quickly could impede the economic recovery fervently backing Mark Carney’s signature forward-guidance policy. Mr Osborne’s speech was responsible for pushing the pound to a 12-week high versus the dollar and within 0.5% of a seven-month high against the euro. The pound has risen 7.3% in the past 6 months, making it the best performer among 10 major currencies as the UK enters an early stage of recovery.

UK stocks declined yesterday, after the FTSE 100 posted its first weekly gain in a month, as a report that showed Chinese exports rose more than estimated. Equities are now the second most popular asset class after property in the UK as investors seek the biggest returns.

Data was thin on the ground on Monday, the only release of note was the RICS Housing Price Balance for August rising from 37% to 40%. UK gilts declined yesterday, pushing the 10-year yield up 2 basis points to 2.96%, close to its highest since 2011.

EUR

Monday saw the Sentix Investor Confidence surge from a previous figure of -4.9 up to 6.5 for August a bullish reading for the euro zone as analysts are positive about the current economic situation and have high expectations for the next semester – making it the first positive print since July 2011.

Data releases today in Europe are GDP figures in Italy forecasted to improve YoY from -2.4% to -2.0% and up from -0.6% to -0.2% QoQ. There are no other reports from Europe to be released today.

On Thursdays all eyes will be focused on the ECB monthly report which will give clues on the Central Bank’s views on the prevailing economic situation in the eurozone and the risks involved with regards to price stability.

USD

Despite a lack of tier one data releases, Monday saw the greenback weaken against most of its major counterparts with two-year Treasury yields dropping for the second day running, with yields ending on 0.43% and increasing speculation surrounding the Federal Reserve’s response to worse than expected employment data released last week.

Friday’s Non-Farm Payroll figures illustrated a rise of 169,000 last month, less than the 180,000 forecast and has prompted a growing number of analysts to suggest that the timescale for tapering has become less clear-cut and that October’s FOMC meeting could be more likely to be when monetary stimulus will begin to be reduced in the US. That said, the over-arching market sentiment is that despite Friday’s disappointing payroll numbers, on the whole, the fundamentals still point to a start to a tapering of monthly bond purchases at the FOMC meeting on the 17th and 18th of this month.

As taper speculation continues, elsewhere the dollar has initially looked to hold declines this morning as the Russian government seems increasingly likely to bid for Bashar Assad’s Syrian government to surrender its chemical weapons, thus averting the prospect of a US military airstrike. This would also serve to dampen demand for haven currencies, and help risk currencies.

In terms of data today, we see the NFIB Small Business Index figures released alongside the JOLTS Job Openings numbers from the Bureau of Labour Statistics.

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Written by Tom Tong

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