Dollar hits highs as sterling and euro suffer from stalls in growth

Claire Hogarth07/Aug/2014Currency Updates

GBP

Sterling lost its early week gains against the dollar and 14 of its 16 major trading partners following weak Industrial and Manufacturing output numbers and a particularly poor showing on the shop price index. By London close of play, the pound had dropped over 0.3 against the dollar and 0.2 against the euro which also suffered from mixed economic data.

The early morning release of the Halifax House Price Index indicated inflationary pressures may rise following a 10.2% rise in property prices against 9.6% called. This had little effect on the markets though which shifted downward following the National Statistics release of data showing Industrial and Manufacturing Production in June were both 0.3% MoM, when growth of around 0.6% was expected. This left YoY figures at 1.2% for Industrial production and 1.9% for Manufacturing, 0.3 and 0.2 below expectation respectively. Crucially the run on the pound was exacerbated by shop price indices hitting a record low of -1.90, which reflects how retail prices may effect long term mainstream inflation.

Unsurprisingly this softening of Q3 UK data was reflected in the NIESR estimate for GDP over the last 3 months, with a drop from 0.9% to 0.6% growth. The pound is looking increasingly vulnerable to poor data releases due to long sterling becoming an increasingly crowded investor position.

Today will see the Bank of England reveal its position on both Interest Rates and the Asset Purchase Facility for August, though no surprises are anticipated.

EUR

The euro hit a 9 month low against the dollar following releases showing Italy had returned to recession and news that Russia is considering moving foot-troops into Ukraine. The single currency’s biggest losses were registered against the yen, as the ‘safe haven’ currency rose 0.5% before Asian trading.

In spite of the Italians seeing a return to growth in MoM Industrial output to 0.9% from -1.2% from May, Gross Domestic Product for Q2 came in at -0.2% against 0.2% called. Consecutive quarterly GDP contraction confirmed the Italian recession and brought YoY GDP to -0.3%.

The recent developments have led to investors being increasingly restricted in taking short positions on Russia, creating a proxy sell off of the euro adding further weight to the beleaguered currency.

Today we have Germany releasing its Industrial Production data for June, French BoP and Greek unemployment, though these are unlikely to majorly influence the markets. There is also the European Central Bank’s Interest Rates decision just before 12 GMT followed by Draghi’s press conference.

USD

The dollar continued to vindicate predictions of its under-performance earlier this year, reaching 11 month highs against a basket of major trading pairs yesterday.

This was buoyed by the house market seeing mortgage applications hit 1.6% growth up from -2.2% and the balance of trade narrowing to $-41.54B from $-44.66B. The reduction in the deficit was brought about most prominently by a $2.9B decrease in goods imports, which itself primarily consisted of drops in consumer goods ($1.3B) and car imports ($1.1B). Given June’s US New Car Sales showed an annualised rate of 17 million for the first time since 2006, it would seem that Motown Detroit is well and truly back in business. Alongside this was a drop in fuel imports as the US goal of energy independence was furthered by a growth in fracking and shale gas extraction.

Little data of note out today aside from new and continuing jobless claims with the latter expecting to see a minor drop.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.