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Euro Drops On Eurozone's Debt Issues

The pound is mixed this morning, consolidating against the dollar, but gaining against the euro on speculation Europe’s debt crisis would spread to France. Sterling came under pressure against the dollar yesterday after the Bank of England said inflation is likely to moderate as economic growth deteriorates. Signs of slowing growth come as the government is trying to implement the deepest spending cuts in decades, boosting speculation that interest rates will remain at a record low for prolonged period of time to revive growth. There are no economic releases scheduled for today. The only notable event for the day is the Chancellor George Osborne’s report to the House of Commons on the economy today at 13:00.

The euro dropped against most of its major rivals during overnight trade on speculation France’s credit rating is under threat. Although rating agencies affirmed French top credit grade, country’s borrowing costs are rising as Europe’s debt crisis makes investors cautious of lending to any nation other than Germany. Yield on 10-year French government bonds surged by 90 basis points more than German, even though both carry AAA grades from major rating companies. In addition, the European Central Bank purchased Spanish and Italian government bonds for a third day in order to drive their yields lower. Expect for the single currency to remain volatile on short/medium term as debt crises that started on the periphery of the region continues to spread throughout the Eurozone.

Pound Dives Before BoE’s Inflation Report

The pound dropped across the board during the overnight trade after yesterday’s reports showed that manufacturing unexpectedly dropped and the trade deficit widened adding to the signs the economic recovery is faltering. NIESR’s (National Institute for Economic and Social Research) growth estimate was released yesterday and showed that second quarter GDP will expand only by 0.6%, suggesting that country’s economic growth remains weak. Signs of worsening economic growth came amid the worst civil unrest since 1980’s, which spread from London to the other parts of the country. The biggest government spending cuts since World War II coupled with debt crisis in the Eurozone are hurting prospects for economic growth in the UK and are proving the case for BoE to keep interest rates at record low. Looking ahead to today, the Bank of England’s August Inflation Report is published at 10:30. Market participants expect for the report to show that the MPC has raised its near-term inflation profile and lowered its near term growth prospects. Separately, Chancellor of the Exchequer George Osborne will brief parliament on Thursday about the state of the economy amid global financial turmoil sparked by S&P’s downgrade of US credit rating. 

The dollar and the euro remained moderately firm during overnight trade after Federal Reserve pledged to maintain its low interest rate policy and as European Central Bank started to purchase Italian and Spanish bonds. The Fed committed yesterday to keep its benchmark interest rate at 0.25% for next two years amid concerns that the US economic recovery is faltering. On the other side of the Atlantic, ECB started purchasing Italian and Spanish bonds on the secondary market as sovereign debt crisis is infecting the regions banks. Looking ahead to today, French manufacturing and industrial production headline the economic calendar, with the expectations for the figures to deteriorate further.

Dollar Drops Versus Euro, Yen as Stock Markets Tumble

The pound dropped against the dollar but remained strong versus the euro after overnight report showed that BRC retail sales improved and UK house prices decline eased in July. The BRC gauge reported that total retail sales rose by 2.5% in July on yearly basis, following 1.5% growth in June. The group said the sales were increased only because of discounts as retailers continue to cut prices heavily in the face of subdued demand. Separately, RICS House prices report showed the house price decline eased slightly in July, but continues to show the divergence between London and the rest of the country. Looking ahead to today industrial and manufacturing production data for June headline the economic calendar, with the expectations for the figures to have increased 0.4% and 0.2% respectively. Also scheduled for today are the trade figures, with projections for the visible trade deficit to have narrowed to 8.1 billion pounds in June after widening unexpectedly in May to 8.5 billion pounds. Expect for the pound to remain supported against its major rivals should the economic releases come in line with expectations.  

The dollar dropped against the euro and the yen during the overnight trade on speculation the Federal Reserve today will continue with its monetary stimulus as world’s largest economy is faltering. The drop in global stocks adds the pressure on the Federal Reserve, which is confronting slowing US economy and unemployment stuck above 9%. The S&P 500 Index tumbled 6.7% yesterday, its biggest decline since 2008. Expect for the Fed to maintain its close to zero interest rate policy with market participants focusing on FOMC decision regarding the additional monetary stimulus at today’s meeting.  

 

Pound Up Versus Dollar As S&P Downgrades US Credit Rating

The pound is mixed this morning, gaining against the broadly weaker dollar, but consolidating against the euro after Lloyds employment confidence report weakened in July. Overnight release showed that index of sentiment towards prospects of employment dropped 3 points to –53 from June, while a gauge of job security declined 1 point to –22. There are no more data releases or policy speeches scheduled for today. Looking to the week ahead, major release is the Bank of England publication of the August Inflation Report coupled with the press conference on Wednesday. Most analysts expect from the central bank to revise down its growth forecast, and to signal that near term interest rate rise is not likely given current market conditions. Also scheduled for this week are the industrial/manufacturing production and trade balance figures from Jun accompanied with BRC sales data from July. Industrial production data is expected to have risen by 0.4% in June, down from May’s 0.9% rise. And finally, July RICS house price balance is also due out this week, with market participants projecting for house price balance to edge up slightly to –28.

The euro gained for a second day in row after the European Central Bank said it welcomed Italy and Spain’s efforts to reduce their swelling budget deficit. The ECB called on all euro area governments to follow through on measures agreed at a July 21 summit, as well as allowing EFSF (European Financial Stability Facility) to purchase bonds on the secondary market. Looking to the week ahead, Eurozone Industrial Production data headlines the economic calendar, coupled with German trade balance and inflation figures. Expect for the single region currency to experience a lot of volatility in coming days as week ahead will unfold the severity of Eurozone debt crisis.

The dollar dropped across the board during the overnight trade after rating agency Standard & Poor’s for the first time ever downgraded US credit rating. S&P announced on Friday that US credit rating is cut by one level to AA+, with “negative” outlook citing the political failure to reduce deficit. On the other hand, Moody’s Investors Services and Fitch Rating affirmed their AAA credit rating for the US. However, Moody’s and Fitch also said that downgrade is possible should lawmakers fail to enact debt reduction measures and if economy weakens. Looking to the week ahead, Federal Reserve holds its policy meeting on Tuesday, with increased fears for a third round of monetary stimulus programme coming back on the agenda.

Pound Gaines Versus Euro On Debt Troubles Within The Single Region

The pound gained against the euro during the overnight trade after European Central Bank President Jean Claude Trichet said ECB will offer more capital to the banks on concern the debt crisis is spreading. The ECB will lend euro area banks as much cash as they need for six months and extend its liquidity measures throughout the end of the year. Separately, Bank of England policymakers left the benchmark rate unchanged at 0.5% and kept its asset purchase program on hold at 200 billion pounds. Following the ECB meeting yesterday, financial markets dropped heavily as the Eurozone and US come under increasing pressure to deal with high levels of debt. Looking ahead to UK today, producer price data and Halifax house price data headline the economic calendar. In Eurozone, Italian second quarter GDP and German Industrial production figures underline the economic calendar.

The dollar gained against its major rivals during overnight trade as global stocks slumped and European debt crisis heightened the risk of a global recession. Dow Jones Industrial Average index closed 4.8% lower after yesterday’s session, followed by 4.78% drop in the S&P500 Index of US equities. The MSCI Emering Markets Index sank 2.2% during overnight trade, extending this week’s loss to 7.8%. So far this week, US reports showed that services industries expanded in July at the slowest pace since February 2010 and consumer spending fell in June for the first time in two years. Looking ahead to today, employment data is expected to show American employers added 85,000 jobs last month, leaving unemployment rate at 9.2%. 

Pound Up Before BoE Monthly Meeting

The pound is higher against its major rivals before the Bank of England announces its interest rate decision today at noon. Market participants expect that central bank policymakers will keep the benchmark rate unchanged at 0.5% and the stock of asset purchases to remain at 200 billion pounds. We will see the full picture of MPC’s current overview on the economy when the August edition of the Inflation report is published next Wednesday. Also scheduled for today is the new car registration release, with the expectations for the figure to improve slightly in July.

The euro dropped against the pound and the dollar during the overnight trade on speculation ECB may not increase interest rates this year as economic growth slows and the debt crisis spreads throughout the region. European Central Bank policymakers are meeting today in Frankfurt and are likely to keep the base interest rate unchanged at 1.5%. With Italian and Spanish bond yields reaching record highs and German economy showing signs of weakening, investors have reduced their bets on ECB increasing interest rates regardless of the upward inflationary pressures.

The US dollar gained against the euro but dropped versus the pound on speculation the Federal Reserve will consider increasing monetary stimulus to support fragile economic growth. Greenback experienced excessive volatility in past couple of days as US government credit rating may be lowered in the medium term even after the compromise was achieved between Democrats and Republicans on debt ceiling.  Looking ahead to the reminder of the week, employment reports today and tomorrow are expected to show that US initial jobless claims rose and the unemployment rate remained above 9%. Analysts expect for the initial jobless claims to have climbed by 7,000 to 405,000 last week.

Pound Drops Before PMI Services Release

The pound fell against the dollar during early morning trade ahead of the July PMI Services release today at 9:30. A services gauge based on a survey of companies is expected to have slipped to 53.2 from 53.9 in June. PMI services measurement comes straight after construction and manufacturing release, which shrank the most in more than two years last month. Overnight, BRC shop price inflation fell back slightly to 2.8% in July, from 2.9% in the previous month. In June CPI inflation fell back unexpectedly as summer discounting started early in areas such as clothing and electrical goods. Separately, NIESR (National Institute for Economic and Social Research) said that UK will grow less than previously forecast and that the government should cut taxes to boost the recovery. According to NIESR the gross domestic product will rise 1.3% this year, compared with the April forecast of 1.4%. Growth will accelerate to 2% in 2012. Expect for the pound to experience volatility against its major rivals should the data surprise on the downside.  

The euro is mixed this morning, gaining slightly against the pound and franc, but consolidating against the dollar as European stocks retreated. Societe Generale declined more than 6% after second quarter profit fell 31% because of the writedown on Greek government debt. Looking ahead to today, Eurozone Retail Sales and PMI Services release headline the economic calendar, with the expectations for the figures to consolidate further.

Pound Up Before PMI Manufacturing Release

The pound gained across the board during the overnight trade ahead of the PMI Manufacturing release. A UK manufacturing gauge is projected to have consolidated to 51 in July from 51.3 in the previous month, but still remaining above 50 mark which indicates if the activity is contracting or expanding. Looking to the weak ahead, the main event is the Bank of England monthly meeting on Thursday with expectations for the base rate to remain unchanged at 0.5% and asset purchase program at 200 billion pounds. Also scheduled for this week is the PMI Construction and Services release and the Halifax house prices figures for July.

The euro dropped against most of its major rivals during the Asian session on concern that debt crisis in Greece is spreading throughout the region. Moody’s Investors Service said on Friday that it’s reviewing Spain’s Aa2 credit rating, with the probability of a one “notch’ downgrade. Today in Eurozone Unemployment Rate and PMI Manufacturing headline the economic calendar, with the forecasts for the figures to have consolidated slightly. The main event later in the week is the ECB monthly meeting. Analysts expect no change in the policy stance, with officials probably leaving the benchmark rate unchanged at 1.5%.

The dollar consolidated throughout the nigh as US President Barrack Obama announced that Republican and Democratic leaders reached an agreement on raising the debt limit. Obama said that leaders of both parties in the US House and Senate had approved an agreement to raise the nation’s debt ceiling by 2.1 trillion dollars and cut the federal deficit by as much as 2.5 trillion dollars over the next decade. Looking to the week ahead, July employment figures headline the economic calendar, with the expectations for an improvement in the rate of job creation.