UK News
Due to a bank holiday there was no major data released in the UK, however sterling gained some ground against euro briefly on Friday to trade a high of 1.2671 before dropping to 1.2603 after US markets opened. After some choppy trading over the weekend the pair currently trade just below strong technical support at 1.26. A sustained break below this level could lead to another short term rally for the euro after last weeks increased confidence.GBPUSD traded generally downwards over the weekend after Fridays session’s high of 1.5869, we saw a steady decline to 1.5788 early this morning. After a sharp, but brief drop to 1.5752 cable has recovered to trade just below resistance at 1.58 again.
UK inflation is expected to now go back over 3% by the year end, which lessens the argument for more QE, Sterling may be able to shake off the recent poor economic data and be somewhat supported, especially versus the US dollar.
A survey showed today, Confidence of British businesses plunged over the summer, suggesting the economy will struggle to pull out of recession this year.
________________________________________
International News
The euro hit a session low of 1.2535 against the dollar and markets speculate on whether another round of quantitative easing for the US could be around the corner. It is likely that political uncertainty and macroeconomic downside risk will drive market development. Attention is now tuned to the monetary policy meeting in the ECB on 6 September.
French president Francois Hollande said that while Greece must show its credibility by implementing austerity measures and reforms, Europe must also recognize efforts it has already made and help the country with growth.
German IFO Business climate figures came in slightly worse than expected and GBPEUR reached a peak of 1.2654 after the news against the weekend low of 1.2609. “The news clearly shows that Germany cannot escape unharmed if the rest of the Eurozone falls into a deep recession,” said Boris Schlossberg, MD of FX Strategy at BK Asset Management in New York. German GfK Consumer Confidence Survey has balanced this data somewhat, after coming out better than expected this morning and strengthening the euro by around 30 pips on release against sterling.
“Monetary policy should do what it can to support the recovery, but Sandra Pianalto, a voting member of the Fed remains increasingly hesitant over further QE. “We remain in a frustratingly slow economic recovery and there are limits to what monetary policy can accomplish”.
The FED comments continue to send out a mixed message on QE policy and perhaps Bernanke’s speech on Friday may provide some clarification.There is potential for huge disappointment if Bernanke doesn’t do something, after conflicting reports on what the Fed would do sent expectations spinning last week.
JPY strengthened after Japan cut its economic assessment, underlining the fragility of the global economy and fundamentally spurring demand for safer assets in the market – such as Japanese Yen and Swiss Franc. Japan’s currency weakened against all except three of its 16 major counterparts as Asian and European stocks declined. Japan’s government downgraded its assessment of the world’s third-biggest economy for the first time in 10 months and some analysts forecast that GDP will shrink this quarter. GBPJPY dropped to a 10-day low this morning of 123.69 after the news.
Canada’s dollar strengthened for a second day against its US counterpart. The loonie rose 0.2% to 99.07. GBPCAD dropped to a weekend low of 1.5613 this morning after trading as high as 1.5769 on Friday.
Australia’s dollar touched its lowest level in a month, extending a two-week decline. The Aussie fell against most of its major peers, AUDUSD declining 0.3% to 1.0369.
