The daily close over the magical resistance level of 1.5780 was the first sign of a potential move higher for GBPUSD, even with the technical set up firmly in place few expected a 100 pip rally following last night’s FOMC minutes that firmly places U.S QE back on the table in September. An expected higher revision in tomorrow’s UK GDP data should help to keep cable supported today. The UK’s recent poor trade deficit figures have put our fiscal policy firmly in the spotlight with a number of current and old MPC members adding personal comments over the past 24 hours. The measures put in place to protect our AAA credit rating status may have started to create the opposite effect as government borrowing figures miss targets.
GBPEUR remained in consolidation yesterday opening at the low of 1.2641 to reach a high of 1.2693. Future direction continues to look like it will be driven by developments in the euro zone, allowing the pair to shrug off the normal effects of domestic data.
GBPCAD maintained its recent upward trend to a hit a high of 1.5696, the highest since 1st August. GBPAUD continued to move higher touching 1.5144, the highest since July 25th.
BBA data has this morning showed that UK mortgage approvals rebounded in July from their low in June.
Yesterday’s August FOMC minutes revealed a high number of members judged additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery. Recent improved U.S data had scaled back expectations of further involvement from the FED. Bernanke’s speech at Jackson Hole next week is now extremely important as the markets look for confirmation of the prospect of QE in September.
EURUSD continued a remarkable recovery from recent multi year lows. Closing the New York session at 1.2529 following the release of the FOMC Minutes. The pair is now showing signs of being overbought so a retracement could occur before any push higher with 1.2650 now being the next target in an optimum environment.
CAD weakened off the back of lower than expected Retail Sales data and moved back towards parity with USD. BOC Governor Mark Carney reiterated its mildly hawkish stance, viewing that modest withdrawal of stimulus may be appropriate. Last month the BoC voted to keep its interest rates unchanged.
Hong Kong will pioneer the sale of Chinese RMB futures contracts, the first offshore futures contracts deliverable in the Chinese currency on 17th September, hoping the plan will give it a larger role in the city’s exploding yuan market as China works to internationalize its currency.
Germany, the champion of the euro area, sold over EUR4bn bonds dated for maturity September 2014 at rates meaning investors will receive no return. This reflects not only the demand for safety but also enthusiasm for potential exposure to a comeback of the Deutsche mark. If it were to make a comeback, any new Deutsche mark would be expected to appreciate quickly.
Egypt has formally requested USD4.8bn from the IMF, according to a presidential spokesman. Ms. Lagarde has yet to respond to the request and met cabinet officials yesterday to continue the discussions.
The leaders of Germany and France are set to hold talks in Berlin on whether to give Greece more time to make the cuts required by its debt bailout. German Chancellor Angela Merkel and French President Francois Hollande will also meet Greek Prime Minister Antonis Samaras later this week. Mr Samaras is seeking an extension of up to two years. The talks come amid reports that due to the worsening state of the economy, which affects tax receipts and welfare spending levels, Greece may now need to find savings of up to 13.5bn euros – 2bn more than thought.
German PMI services unexpectedly declined for the first time in 3 years this morning. While Europe’s flash PMI did nothing to challenge the notion that the single currency area is now firmly in recession.