Yesterday the pound saw a high of 1.2773 against the euro, before dropping to a low of 1.2706 on expectations that data due this week will bolster the case for more quantitative easing.
GBPUSD only managed to gain 0.1% on the day to close at 1.5693 after reaching a high of $1.5717, its strongest since late July. In a survey compiled by The Chartered Institute of Personnel and Development, UK companies plan to increase employment levels in the next three months, but may look to make cuts if economic data fails to prompt a recovery.
The UK housing market appears to back on the ropes again as the Royal Institution of Chartered Surveyors said UK house prices fell last month, marking the lowest level since June 2011. Prices fell to a balance of -24 in July from -22 in June.
UK CPI figures released this morning have shown inflation has gone against expectations, rising in July. The annualised figure of 2.6%, is up on last month’s figure of 2.4% and estimates of 2.3%. Whilst the increase in prices puts extra pressure on the consumer, the pound might see gains as this result lessens the case for extra monetary easing.
Of the back of this data the pound has risen slightly against the US dollar and euro, the next resistance levels to watch are 1.5743 and 1.2761 respectively.
EURUSD fell to low of $1.2263 as the European session opened but traded back up throughout the day breaking through two key resistance levels to reach a session high of 1.2367 on the back of a successful bond auction in Italy and news the yields on Spanish bonds has dropped.
Greece is still experiencing difficulties as data released yesterday showed GDP contracted 6.2% in the second quarter compared with a year earlier. Despite the significant fall, the figure was better than the 6.5% decline seen in the first quarter and estimates of a 7.0% fall providing additional support for the euro.
Last night New Zealand Retail Sales were better than expected at 1.30% for the second quarter after a 0.6% decline in the first quarter, the positive data has had little impact on NZD strength.
Early this morning German preliminary GDP figures came in slightly better than forecast at 0.3% for the quarter, but in the longer term it remains to be seen if Germany will escape the sovereign debt crisis and keep the Eurozone out of recession. GDP was expected to show modest growth of about 0.2%, after 0.5% growth in the previous quarter.
Jörg Krämer, Chief Economist at Commerzbank said, ‘’The German economy is losing momentum, there’s no doubt about that, and in the third quarter the economy will shrink compared to the second quarter.”
After the recent rounds of GDP figures, 7 of the 17 Eurozone are now confirmed to be in recession. Business confidence fell for a third straight month in July and manufacturing is contracting. A lack of growth across the area and deep recession in the periphery nations is hampering fiscal consolidation and prolonging the debt crisis.
US Retail Sales will be the major focus today (see below), if a weaker than expected figure is published it would be risk negative and ultimately could be put the US dollar under pressure by encouraging expectations of more QE.