The US Dollars strengthening… Currency market newsBy james tweed • Oct 2nd, 2012 • Category: Currency
Significant items this week:
Tues 2nd Oct UK – PMI construction
Wed 3rd Oct UK – PMI services
EU – Germany, France, Italy and EMU PMI services
US – Private sector employment
Thurs 4th Oct UK – BOE MPC Interest rate meeting
EU – ECB Interest rate meeting
US – Factory Orders, FOMC minutes
Fri 5th Oct EU – German factory orders
US – Non Farm payrolls, Unemployment, Consumer credit.
Thank you for downloading the foreign exchange market report podcast for October 1st from Coracle Online and Crossbar fx.
The USD has begun strengthening as the effects of the Feds’ monetary easing weakens and fears resume about the financial status of Europe. Concerns over Spain were the main driving force behind traders’ appetite for risk. Mr Rajoy is still manoeuvring for a bailout without strings for Spain, but the Germans, Dutch and Finns (the triple A club) are not giving in. Spanish Banks have been reaffirmed as requiring another Euro 60 billion capitalisation. Recent data from Germany shows their economy is just about hanging on, while other EMU members sink further into recession. Tough new budgets from Spain and France will inflict more pain, and in both cases are based upon very optimistic forecasts. European equity markets reacted to these budgets by falling quickly. The Greeks are getting close to agreeing to a new round of tax increases and spending cuts which should offer enough cover for Mrs Merkel to grant a reprieve.
In the US is has become fashionable to dismiss QE 3’s effectiveness and instead look forward to the fiscal cliff that’s looming on the horizon… when some tax breaks etc cease on the 1st Jan 2013. On a positive note the latest US housing market data is the best reported since 2005.
UK data is increasingly pointing to positive growth now that the effects of the extra bank holidays are receding. The third go at producing Q2 GDP figures resulted in another revision, upwards to minus 0.4% and Business Investment in Q2 was revised to become positive. What is rather worrying is that Fitch, the ratings agency, has mooted that it may downgrade the UK because of poor growth prospects. So far no one seems to be listening but it seems impossible that Britain can remain in the small group of the most credit worthy nations for much longer. The economy is stuck in recession and shows little sign of recovery. Tax receipts are falling short of expectations and cuts in public spending are slow to materialise. It’s all a matter of when, not if.. The club of triple A rated countries is getting smaller with the US being the latest to fall out of the group. All the members have stable and well capitalised banking systems, trade surpluses, and welfare, health and pension systems that are properly funded and don’t have big open ended liabilities – not something that looks like the UK. Britain sticks out like a 60 year old at a One Direction gig!
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