The British pound halted the four-day rally and pared gains from the previous week to reach a low of 1.6521 against the greenback, and the GBP/USD may continue to retrace the September advance as the economic outlook for the U.K. remains weak.
[B][U]Talking Points[/U][/B]
· [B]Japanese Yen: Appreciates as Risk Appetite Tapers[/B]
· [B]Pound: U.K. Economic Outlook Deteriorates[/B]
· [B]Euro: Industrial Outputs, Employment Falter[/B]
· [B]US Dollar[/B][B]: Fed Officials to Speak on Financial Regulation, Economy[/B]
The British pound halted the four-day rally and pared gains from the previous week to reach a low of 1.6521 against the greenback, and the GBP/USD may continue to retrace the September advance as the economic outlook for the U.K. remains weak. The European Commission anticipates economic activity to expand 0.2% in the third quarter but forecasts the economic recovery to remain weak following the slump in private sector spending, and projects GDP to expand 0.5% in the final three-months of the year. Moreover, the EU expects the annual rate of growth to fall 4.3% from the previous year amid an initial forecast for a 3.8% drop in GDP, and the downturn in the labor market may continue to weigh on economic activity going forward as businesses continue to scale back on production and employment in an effort to weather the downturn in global trade.
At the same time, Ernst & Young’s Item Club anticipates the housing slump in the U.K. to persist going into the following year, and held a dour outlook for home prices as households continue to face tightening credit conditions paired with a weakening labor market. The group anticipates house prices to stagnate over the next two-years after “dipping” lower in the first half of 2010 as mortgage lending is expect to “remain scare and expensive,” and went onto say that “the current status quo of a low number of transactions, dominated by speculative cash buyers, is likely to be maintained” going forward. As fears of a slower recovery intensify, the British pound may face increased selling pressures in the coming months as investors speculate the Bank of England to ease policy further going into the following year, and the slump in interest rate expectations could lead the GBP/USD to retrace the advance from earlier this year as economic activity is
The euro tipped lower against the U.S. dollar for the second day but remained supported above 1.4500, and the EUR/USD may continue to retrace the advance from the previous week as the economic outlook weakens. Industrial production in the Euro-Zone weakened for the second month in July, with outputs falling 0.3% from the previous month amid expectations for a 0.2% decline, while the annualized rate of production tumbled 15.9% from the previous year after falling 16.7% in June. The breakdown of the report showed outputs of capital goods plunged 1.8% during the month, with production of durable consumer goods slipping 0.8%, while energy outputs fell 1.2% after rising 2.2% in June. At the same time, a separate report showed employment fell 0.5% in the second quarter after falling 0.7% during the first three months of the year, while the annualized rate plunged 1.8% from the previous year, and economic activity is likely to remain subdued over the coming months as businesses continue to scale back on production and employment in an effort to weather the downturn in global trade.
The U.S. dollar strengthened against most of its currency counterparts, with the USD/JPY paring the overnight decline to trade back above 90.50, and the reserve currency may face increased volatility going into the North American trade despite the lack of market moving data as Fed officials are scheduled to speak throughout the day. Nevertheless, as risk trends continue to dictate price action in the foreign exchange market, equity futures foreshadow a lower open for the U.S. trade, and the greenback may extend its rally over the next 24 hours of trading as the reserve currency continues to benefit from safe-haven flows.
[B]Will The EUR/USD Remain Above 1.4000? Join us in the Forurm[/B]
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[B][I]To discuss this report contact David Song, Currency Analyst: <[email protected]>[/I][/B]
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