The Bank of England’s new Funding for Lending Scheme which is aims to unblock the flow of credit in Britain’s economy, will take more than a few months to fully bear fruit, BoE Paul Fisher said on Wednesday. Scepticism has already been raised as a number of the UK’s top lenders raise their STV rate on mortgages (further restricting credit and spending conditions for our consumers).With the BoE announcing another round of QE in July and unveiling the Funding for lending scheme, this morning’s broad money data will be of interest as will provide some indication of whether the bank’s stimulus is gaining traction.
GBPEUR traded between a range of 66 points yesterday with a high of 1.26486 and a low of 1.2582 hit first thing in the London session. Overnight comments from China agreeing to continue buying European government bonds have bought the pair to session lows of 1.2610.
GBPUSD traded within an equally tight range of 1.5802 to 1.5854 having a small flurry of activity post U.S GDP figures that showed no surprise to consensus. From here all eyes remain on Friday speech after which we look for either resistance of 1.5888 or support of 1.5750 to be tested.
A Citigroup survey suggests that expectation for the rate of inflation to climb in the coming year has increased in July to 2.8% from June’s 2.4%, further constraining likely consumer spending and making it harder for the economy to emerge from recession.
The ECB and the Fed are noticeably tight-lipped ahead of the ever important September briefings. Although the Kansas Fed sponsored Jackson Hole Economic Symposium is expected to shed light on fiscal policy and easing, it seems that speculation over what role the ECB will play in future bond buying remains the key concern across the major currencies.
The euro did see some pressure yesterday as we saw headlines that another Spanish region could potentially request government aid, reminding everyone of how close the situation is to disaster. It does seem however that most traders will remain somewhat side-lined until an understanding on the ECB’s intervention is made clearer.
EURUSD continues to hold above 1.25 with EUR peaking at 1.2573. The lowest key support of this range is being acknowledged as 1.2414, and traders suggest that any movement through 1.2588 may propel EUR higher to towards 1.27.
The upward revision to US GDP growth in the second quarter, to 1.7% from the preliminary estimate of 1.5%, offers little comfort as it is old news.
The alternative economic report, US GDI (gross domestic income) suggests that the US economy is hardly growing at all, which may go some way to explaining the slight dip in the value of the dollar over today’s session.
US personal spending for July should provide some insight into postings for third quarter GDP. Spending is forecast to increase by 0.5% after a flat reading for June.
French business sentiment remains low; although it did improve very slightly it remains at a level indicating an unfavourable economic situation. French Prime Minister Ayrault has come out to say publicly that he feels Eurobonds are in fact ‘necessary’ now, and that confidence is the main concern for the region.