The Pound made against the Euro and the Dollar on a report that the Swiss National Bank will raise its percentage of sterling holdings in its portfolio of foreign currencies. While the SNB gave no specific time frame other than “in the next year”, expectations of sterling-buying have provided support with no economic data released to dissuade sterling-bulls.
The Dollar declined against the Pound and the Euro as the market’s appetite for risk swings into positive territory. The uptick in optimism comes after Germany’s lower house approved the expansion of the Eurozone’s “bailout” fund to backstop the region’s debt plagued periphery and also add enough firepower to assist larger economies, like Italy and Spain, should it be needed. Investors also found support in better-than-expected economic data out of the US. The final reading of Q2 GDP picked up to 1.3% from 1.0% last month, better than the 1.2% reading that was expected. The measure’s core price index also unexpectedly gained to 2.3% versus last month’s 2.2%.
While this is by no means a sign of runaway inflation, the higher-than-expected numbers do serve to at least abate any fears of deflation in the near term, a concern that has reemerged amongst investors as the global economy teeters on the brink of a double-dip recession. Personal consumption gained by 0.7%, up from 0.4% in the previous reading, and weekly jobless claims fell by more than expected to 391K versus last week’s 428k. However, a gauge of consumer confidence fell to -53.0 versus an expected reading of -51.0 as volatile stock and commodity prices weigh on sentiment. While the developments in Germany and the upbeat economic data are a welcome relief, the underlying deficiencies in the global economy persist, and as such the dollar will likely remain in its recent ranges in the near term, albeit towards the lower end.
The Euro declined against the Pound while making gains against the Dollar after the positive developments in Germany. The vote now moves to the upper house of the German parliament, with a successful vote expected. While the expansion of the EFSF itself doesn’t do much for Greece or any of the other struggling economies in the short term, it does serve to boost investor confidence and allows Eurozone officials to focus in on more pressing matters. Even still, a recent poll showed that 93% believe that Greece will eventually default, and 40% see the currency bloc loosing at least one member in the next year.
Nevertheless, the uptick in optimism will likely keep the common currency relegated to its recent 1.35 – 1.37 range with a bias to the upside.
Data released 30.09.2011
EU 10.00 Flash HICP (September)
EU 10.00 Unemployment Rate (August)
US 13.30 Personal Income/ Consumption (August)
Core PCE
US 14.45 Chicago PMI (September)
US 14.55 Michigan Sent. Survey (September – Final)