America recovers from Polar Storm, Euro down on geopolitical fears

Claire Hogarth29/Aug/2014Currency Updates

GBP

Sterling held strong against a rising dollar and pushed up past two week highs on the euro. The Confederation of British Industry had provided the pound with early support following a report that indicated positive growth in the retail and wholesale sectors. The CBI’s index registered at +37, its fastest pace in six months, reflecting a high street boom following the previous month’s score of +21.

The UK’s lack of data this week has increased the market’s spotlight on the Scottish Independence Referendum, yesterday saw 200 pro-Independence business leaders respond to the letter from 130 of their pro-UK counterparts posted the previous day, which cautioned against the economic ramifications of the split. Whilst sterling’s solid performance over the past 3 days can be seen as indicative of declining fears surrounding the likelihood of Scottish succession, it has also benefited largely from comparative weakness in its major trading pairs.

Today we have Nationwide Housing Prices data for August and Business Investment figures for Q2.

EUR

A plethora of data from the Eurozone yesterday which began the morning with Spanish GDP, on par with expectation, and HICP, still indicating worrying deflation. This was followed by German unemployment data, with the rate remaining at 6.7 but the overall figure of unemployed disappointingly rising slightly. Whilst the report pointed to the overall number of people employed in Germany being up 0.8% from August last year, this did not stop the euro from beginning a downward trend against its major pairs.

We then saw dipping Italian and Portuguese business confidence and a drop in Eurozone wide economic sentiment before the Germans released the key inflation figure at midday. German HICP came in at 0% MoM for August and 0.8% YoY in line with expectations giving little away for today’s key Eurozone CPI figure, though the euro’s continued decline for the day was sealed before the data release as heightened tensions in Ukraine overshadowed macro figures.

President Poroshenko accused Russia of sending troops onto Ukrainian soil to fight with rebels to take the southern city of Novoazovsk, located outside the area where the separatists have previously been fighting. The single currency dropped 0.2 on sterling, 0.2 on the dollar nearing 11 month lows & 0.3 against the yen, with the Asian Haven currency making advancements across the G10 as the market responded to the volatile geopolitical landscape.

USD

American GDP for the second quarter of 2014 came in at a mightily impressive 4.2%, comfortably outperforming market expectation. The resulting dollar strength lead to the green back paring its earlier losses against the yen and taking further gains versus the euro.

Gross Domestic Product for April to June grew at an annual rate of 4%, with upward revisions to export and business spending figures driving the overall 4.2 figure.

The GDP Price Index also surprised 0.2 to the upside of expectations at 2.2%, up from 1.3% in Q1, a positive indicator for today’s important Core Personal Consumption Expenditure Price Index.

Initial jobless claims fell to 298k from 299k but in spite of this we saw growth in continuing claims, up 25k where a modest 11k growth was expected. Pending Home Sales, somewhat of a lagging indicator of US economic growth, jumped to 3.3% in July from -1.3% in May, further reflecting the US bounce-back from the polar-vortex-induced sluggishness of Q1.

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Written by Claire Hogarth

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