GBP/EUR 1.1894 (0.8407)
Economic data releases were on the light side yesterday but we had plenty to keep us occupied throughout the trading day. First on the docket was weaker than expected Eurozone industrial production declining 1.5% in July versus expected declines of .3% for the period. Most should know our concerns by now, we have seen signs of improvements from the Eurozone but if anything these are simply the first signs of stabilisation, the region still remains vulnerable to downside risks around the debt crisis, from political instabilities as a result of austerity measures to countries still requiring further bailouts.
We have heard several ECB and EU leaders speak this week and whilst many commented on the signs of improvements, the key point most mentioned was the fact that the ECB are expected to remain accommodative for a prolonged period of time, they remain ready to act if required and have not ruled out the possibility of further cuts, nearly all voiced concerns about growth and employment and this was highlighted again yesterday as we saw Greek unemployment tick higher once again, with the youth unemployment figure over 58%. The EUR may face these concerns today as Euro area minister meet to discuss Greece, Cyprus and the banking union.
Key policy makers from the BOE were testifying in front of parliament, Governor Mark Carney and members Fisher, Miles and McCarfferty were all answering questions and for the most part appeared to be singing from the same hymn sheet on most topics. All members acknowledged improvements in the UK economy some believing recovery has gained momentum, others expressing the recovery is only very new highlighting that risks still remain to the economy.
Carney was quick to reiterate the BOE’s guidance policy in that it will not change until unemployment reached 7%; this includes the winding down of QE with the disposal of assets purchased during the easing program. Carney was happy to appease both sides of the market saying that further stimulus is possible if the economy needs it, but they would also have no problem raising rates if it was needed. Overall this left the pound pretty much unchanged on the day, there are certainly opportunities for further advancement in GBP but we will need to see further supporting data from the UK.
Weekly jobless claims from the US shocked the market falling to 292k on the week from an expected 330k, the USD rallied initially on the results as it saw the 4 week average on jobless claims fall to its lowest levels since October 2007 – certainly supportive of September’s expected taper. However news filtered back quickly that new computer systems meant that two states could not report figure causing USD to immediately give back some of its gains.
Overall however the USD was stronger on the day halting a week where we saw declines, this coincided with US equity markets struggling to maintain traction, perhaps taper concerns filtering back in to US equities. Today should give us some further clues regarding taper expectations with US retail Sales, Producer Price data as well as U. Of Michigan confidence survey and business inventories.