GBP/EUR 1.1939 (0.8376)
The biggest release on yesterday’s calendar was Eurozone GDP figures and they probably resulted in the least volatility of any release on the day. Q3 GDP was as expected for the region posting .1% growth, despite signs of bottoming out, the regions troubles are far from over if growth is to remain as anaemic as recent releases, especially with unemployment continuing to tick higher month on month. The year on year GDP figure ticked lower to -.4% vs -.3% expected following revision to the second quarter release.
There are other concerns for the region, the pace of growth in Germany slowed while both Italy and France experienced contraction. There were signs of improvements in the periphery but the likes of Cyprus and Greece still remain deep in recession. All in all the overall tone for the region was weak and should we see continued poor performance for the region we would expect markets to begin to position for some form of new large scale asset purchase program from the ECB. On a lighter note reports Ireland would look to exit its bailout in December was some good news for the nation, however one point of caution was they would do so without the backstop of and EU credit line.
Data from the US yesterday was probably at odds to recent releases. Better than expected GDP and Non Farm payrolls released last week seem a distant memory following Janet Yellen’s testimony to congress and weaker than expected weekly jobless claims and a poor trade balance release. Yellen continues to reaffirm her support for highly accommodative policy from the Fed, she is a firm believer that jobs growth is essential for the US to reach exit velocity and believes the Feds current stance is manageable. This is not great news for those looking for a December Taper but Bernanke will not be stepping down until the end of January so should US data be supportive the chance of a December taper remains.
The advance release of Yellens testimony on Wednesday gave the markets time to position and the rally in US equities both on Wednesday and yesterday was proof of this. The USD obviously also felt pressure but there was little change in the USD yesterday in fact it was far stronger against the JPY. What may be of greater impact to the USD is the continued weak growth from Europe and across the globe, which may impact US growth targets. With the potential for further easing from the ECB, Japan and continued easing in the US we may start seeing “currency war” headlines once again.
Retail sales in the UK were weaker than expected, rising 2.3% ex Auto vs 3.1% expected but the pound took little notice. It did lose some ground against the USD initially but the dovish tone from Janet Yellen saw USD weakness surpass the pound’s initial losses. GBP was stronger against the EUR, but taking the two economies in context this is no surprise. The BOE are talking up the UK economy, revising expectations for growth higher and unemployment lower whilst the ECB has just cut rates to an all time low with further easing possible.
Eurozone inflation data tops this morning’s data releases in the form of CPI readings. The Euro began its slide from recent highs following a weak inflation report and October figures are expected to show inflation coming in at -.1%. This may well drive the EUR lower should the release confirm weak inflation. Later in the US session industrial and manufacturing production data tops the calendar.
November 15, 2013