Concern over overall outlook of the UK economy as inflation fails to meet the 2% target

Tom Tong25/Sep/2013Currency Updates

USD

The dollar strengthened on Tuesday as investors mulled a mixed bag of economic data and recent comments from Federal Reserve officials that the US economy was not strong enough to start reducing monetary stimulus. The dollar index which measures the US currency against a basket of six rival currencies advances to 80.574 from 80.453.

Yesterday saw USD Consumer confidence for September arriving at 0.2% less than consensus, with consumers feeling nervous regarding the outlook of the U.S economy and the rise in borrowing costs. Despite a third continuous day of declines for U.S yields, the green back traded higher against majority of the major currencies apart from the Japanese Yen.

The most influential economic data out of the U.S this afternoon is the release of USD Durable goods orders for the month of August previously at -7.4% and is expected to decrease 0.2%. Followed up by new home sales MoM for August with expectations of an improvement from a previous -13.4% to 6.6%.

EUR

We saw little movement in the euro yesterday as it continued to come under some pressure. The uncertainty over the Fed’s outlook and comments on Monday from ECB President Mario Draghi saying that the bank was ready to provide more long term loans to money market rates from rising has kept the euro pinned down. Draghi’s message was reinforced yesterday by Ewald Nowotny, a member of the ECB Governing Council who said it was too soon for the bank to go back into exit mode from its crisis measures.

Data out of the eurozone yesterday was relatively sparse. The main focus was on German IFO business climate index which came in positively at 107.7 – marginally above Augusts reading. However, the index fell short of consensus forecast of 108.2.

Many believe that we are beginning to see a stalling in improvement in eurozone economic data. In addition now that the German election is over the market could dust off issues that had fallen out of focus.

News out of the eurozone is relatively limited today with smattering of Tier 3 data.

GBP

Sterling dipped on Tuesday after a Bank of England policymaker expressed concern about the outlook of the UK economy, despite its recent improvement.

Ben Broadbent said in a speech on Monday that the surprisingly strong acceleration in UK growth may settle down soon. Following on from that Paul Tucker, a senior bank of England Policy maker, spoke about his fears that continued financial stimulus has the potential to lead to higher inflation. The Bank of England has set a goal of 2% inflation, however consumer price inflation has, at point, reached far beyond this and has gone up to 5.2%.

Data released yesterday by the British Bankers Association (BBA) shows that mortgage lending has risen to a four-year peak whilst business loans has remained largely static. Unsecured consumer credit has also risen in the past four months out of five. This can be seen as positive as it shows a willingness for banks to start lending again to consumers.

The only data out today is the CBI Distributive Trade Survey which is an index of the volume of retail sales.

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Written by Tom Tong

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