Obama officially pauses calls for a strike in Syria, thus easing tension within the markets in an otherwise quiet day of data release
11/Sep/2013 • Currency Updates•
So far it has been strong week for sterling. The pound has gained against a basket of currencies most notably against the dollar where we saw it hits its highest level in seven months.
Sterling’s strength boils down to a string of healthy data we have seen out of the UK, including a number of positive PMI figures and an improvement in risk sentiment. This has been coupled with Chancellor George Osborne’s speech that took place in London on Monday in which he supported BOE Governor Mark Carney’s view on the forward guidance policy. Despite this economic recovery, Business secretary Vince Cable will warn of the dangers of complacency in a speech today to the Confederation of British Industry.
In other news, a paper released by the San Francisco Fed yesterday has accused George Osborne’s austerity measures of slashing UK growth by 3%. The authors use an experimental technique to suggest that the adverse effect of trying to reduce the UK’s deficit may have been underestimated, with austerity causing a larger impact than suggested by the IMF.
Today’s data releases could have a large impact on sterling movement as the UK gears up to release its claimant count change for August. After a fall of nearly 30k in July the number of jobless claimants is expected to post another decline in August – effectively keeping unemployment stable at 7.8%.
For the first time in 18 months Spanish yields dropped below Italy’s, buoyed by Chinese economic data that exceeded the estimated forecasts and easing of tensions related to Syria.
The Sentix index rose to 6.5, the highest levels since the ECB decided to raise interest rates since 2011, the second largest single month increase recorded in a decade. The Eurozone has finally crept into growth after a year and a half contraction.
Italian GDP was the only main figure released yesterday with both YoY and QoQ both coming in 0.1% below forecast. The only figure out today with any relevance is the 10 year German bond auction expected in at 1.8%.
Although there were no major releases yesterday, we saw the dollar lose ground against the pound reaching its lowest level since mid-June. Whilst at the same time we saw it extend gains against the yen, thus reaching an approximate 7-week high following Obama’s speech calling for diplomacy in dealing with chemical weapons within Syria. Obama has officially paused calls for a strike in Syria easing tension within the markets. Moves in the U.S. dollar are likely to be limited following disappointing jobs data last Friday creating uncertainty regarding the Federal Reserve and whether it will start scaling back stimulus this month, a policy meeting will be held next week. We are set for a quiet week as the next significant data out of the U.S will be released on Friday in the form of advanced retail sales.
Only tier 3 data will be released out of the U.S including Wholesale trade figures for July, which are expected to rise from 0.4% to 0.5%.