GBP/EUR 1.1465 (0.8716)
The dollar eked out modest gains on Tuesday as the market waited to see whether a much-anticipated statement from the Federal Reserve today would signal it is ready to wind down its stimulative asset-purchase program later this year. The statement is to be issued by the Federal Open Market Committee, the Fed’s policy-making arm, after its two-day meeting. The U.S. central bank now makes purchases of $85 billion a month in bonds. Fed Chairman Ben Bernanke said in May the Fed may start phasing out its bond-buying plan in September, fuelling a dollar rally. Bernanke, however, backtracked a few weeks ago, saying quantitative easing will stay as long the economy remains weak and inflation low. Less stimulus could prod U.S. interest rates higher, making the dollar more attractive to investors. Staying stateside with two significant releases investors are receiving mixed messages. Advanced GDP is anticipated to come in sub bar at 1.1% but the monthly jobs report suggest the economy is on the upswing and we feel the Jobs figure is a better baramoter, more people working means more jobs are available, more cash is going to consumers, more money is being spent — and more companies are hiring to keep up with demand, whereas the headline number on gross domestic product, by contrast, looks at growth through the rear-view mirror and often paints a misleading picture of the economy. A high growth rate could be the result of one-time factors soon to fade; a low GDP reading could mask the economy’s true strength. The dollar made a significant impact against GBP in the last couple of days with early summer highs in June of 1.57 a distant memory and even more so are January’s level of 1.62. Strong figures and positive rhetoric out this evening could well see the cross test 1.50 again.
UK consumer confidence is its “least bleak” since early 2010 after jumping in July to its highest in more than 3 years, an early sign that the economic recovery is gaining steam in the third quarter. It also follows news that Britain’s economy expanded 0.6 percent in the second quarter – double the pace of growth in the first three months of the year.
The Euro though is remaining strong against a host of currencies with recent gains against GBP, USD & AUD. German preliminary GDP increased by 0.5% from an anticipated 0.3%, Spanish GDP q/q while coming in negative was in line with market expectations and a successful Italian bond auction offered European markets and investors fresh hope that there may be light at the end of the tunnel although we have been here before. EUR/GBP has seen significant gains this week pushing through 0.87 targeting yearly highs of 0.8745. The ECB press conference should make interesting viewing tomorrow afternoon.