The Pound declined against the Euro and the Dollar as investors seek relatively safe assets. The UK economy continues to languish, with recent reports showing that British factory orders fell and business optimism tumbled to the lowest level in two and a half years. British policymakers have also been outspoken about the importance of resolving the Eurozone debt crisis with the 17-nation bloc being the main destination for British exports.
The Dollar made gains against the Pound and the Euro on the renewed wave of risk aversion, and despite the marginal recovery in global financial markets. The revived market optimism came after positive developments in the Eurozone debt saga and stronger-than-expected economic data was released in the US. Durable goods excluding the volatile transportation component surged by 1.7%, far better than both the 0.4% gain that was expected and last month’s 0.4% decline. Non-defense related capital goods orders also surprised to the upside, rising by 2.4% versus a forecast gain of 0.5%.
New home sales were also released above forecast at 313K versus 296K in the previous reading. The data is encouraging for the US economy a day before the initial estimates of Q3 GDP is released. Nevertheless, the US economy continues to face speed bumps ahead, largely on the policy front. The Congressional “super committee” set up during the latest budget deal is scheduled to hold a public hearing today for the first time in nearly six weeks.
With little more than a month to go before the committee is to agree on more than a trillion dollars in budget cuts, the political drama that led to the US losing its coveted AAA rating threatens to heat up in the coming days and weeks. In the near term, investors will remain focused on developments in Europe with any announcement short of an “end-all” comprehensive plan to backstop the struggling Eurozone nations likely providing support for the “safe-haven” USD.
The Euro ended the day up against the Pound and down against the Dollar yesterday after a choppy day of activity.
The euro hit 7-week highs in overnight trade, breaking through the $1.40 level versus the dollar as markets reacted positively to the news of a debt deal in Europe. Significant gains, however, could be difficult given that markets had already pushed the euro higher on hopes of a resolution. Little is known as yet about the finer details but what we do know is that there will be a 50% write down for private bondholders on their Greek debt, European banks are to be recapitalised to the tune of €110billion to allow them reach a capital position of 9% of Core Tier 1 by end June 2012, while the EFSF rescue fund is to be scaled up. Greek Prime Minister George Papandreou said that as a result of the burden sharing agreement the country’s debt burden is now sustainable.
Data released 27.10.2011
EU 10.00 Business Climate (October)
EU 10.00 Economic Sentiment (October)
Industrial / Services / Consumer
UK 11.00 Distributive Trades Survey (October)
US 13.30 Advance GDP (Q3)
US 13.30 Initial Jobless Claims (w/e 22nd October)
US 15.00 Pending Home Sales (September)