Dollar gains ahead of Fed meeting today
30/Jul/2014 • Currency Updates•
Markets saw a little more volatility yesterday, as data surprised across the board. The focus in the UK was on mortgage approvals and lending to individuals, which came in above and below expectations respectively. Lenders across the UK granted 67k mortgage specific loans, compared with the 62k called, but only £2.5bn worth of credit to individuals in general, £100m less than thought.
Sterling bounced around resistance levels but no reaction was strong enough to cause a discernible trend, except for against the dollar, which had a good day across the board. Much of sterling’s fortunes this week will be determined by forces elsewhere across the globe, which will test the market’s underlying belief in the value of the pound.
The only data release today is consumer confidence for July.
The smattering of low level data released yesterday didn’t do much to the single currency, which mirrored the pound in its low volatility. The most exciting bit of data released was Spanish retail sales, at a disappointing 0.2% YoY, although we also saw Greek inflation top 1% in June.
A depreciating currency can often seem like a negative, however, as Mario Draghi knows, the overvalued euro has been a cause for concern and a hindrance to growth for pretty much the past year. A weaker currency will make it easier for companies to export; the demographic hit most will be higher value individuals who tend to be net importers.
More excitement from the Eurozone today, with economic, industrial and service sentiment indicators. We also have consumer and business confidence plus German CPI. This all comes ahead of EU wide CPI tomorrow.
The dollar put in a solid performance yesterday for the second day on the trot. Cable is hovering around 30 day lows and euro dollar is down to near 10 month lows. Movement overnight and this morning reflect early betting ahead of the Fed’s interest rate decision this evening.
Big day today in the US; the Fed makes a decision on whether to raise the headline lending rate after GDP for Q2 is announced at lunchtime. Although no IR increase is expected this month, markets will be keeping an eye out for scraps of information about future timescales. Recent strong performance by the US economy has led many to bet on a more hawkish stance from Yellen today.
The big week for the US continues tomorrow with jobless claims and NFP of course on Friday.
Other Market News
The all seeing eye of the market was focused on Washington yesterday, as US Secretary of State John Kerry announced a fresh round of US and EU combined sanctions. The strongest action came in banning Russian banks from selling equity and bonds into US and European markets, while also imposing export restrictions on military hardware and technology. Global stocks pulled back slightly after the announcement, as economic sanctions will inevitably affect the countries imposing them as well as the subject. More sanctions are to be announced tomorrow. Keep an eye too on Argentina, which could default on its debt today.