The British pound strengthened against the greenback as the economic docket reinforced an improved outlook for the U.K., with the exchange rate pushing back above 1.5900 after slipping to a low of 1.5826 during the European trade.
[U][B]Talking Points[/B][/U][B]
• Japanese Yen: USD/JPY Rebounds From Eight-Month Low
• Pound: Mortgage Approvals Top Forecasts, Consumer Credit Falters
• Euro: Confidence Surveys Fail to Impress
• US Dollar: Consumer Confidence on Tap[/B]
The British pound strengthened against the greenback as the economic docket reinforced an improved outlook for the U.K., with the exchange rate pushing back above 1.5900 after slipping to a low of 1.5826 during the European trade. The final GDP reading showed economic activity fell 0.6% in second-quarter amid an initial forecast for a 0.7% contraction, while the annual rate of growth slipped 5.5% from the previous year despite expectations for a 5.4% decline, and conditions are likely to improve throughout the second-half of the year as policy makers see the economy emerging from the worst recession since the post-war period.
Moreover, mortgage approvals in the U.K. slipped to 52.3K in August from a revised reading of 52.4K in the previous month, which topped expectations for a rise to 51.5K, while secured lending for homes increased GBP 1.0B after falling GBP 0.2B in the previous month. At the same time, consumer credit fell for the second month as households repaid GBP 0.3B in debt, which is the most since April 1993, and lending activity in U.K. is likely to remain subdued over the coming months as the banking system remains weak. Meanwhile, the CBI Distributive Trades survey showed the gauge for retail sales jumped to 3 in September from -16 in the previous month, with expected sales for October rising to 3 from -14 in September, and the rebound in household spending encourages an improved outlook for future growth as private-sector spending remains one of the biggest drivers of growth. Nevertheless, as the Bank of England holds borrowing costs at the record-low and commits GBP 127B in asset purchases to shore up the ailing economy, the extraordinary efforts should help to stem the downside risks for growth and inflation as the central bank expects economic activity to improve throughout the second-half of the year.
The euro weakened against the U.S. dollar for the second day, with the exchange rate slipping below the 20-Day moving average to reach a low of 1.4537, and the EUR/USD may continue to retrace the rally from earlier this month as policy makers continue to see a risk for a slower recovery. Nevertheless, the business climate indicator in the Euro-Zone increased to -2.07 from a revised reading of -2.18 in August, but fell short of expectations for a rise to -1.92, while economic confidence advanced to 82.8 in September to top expectations for a rise to 82.7. Moreover, consumer sentiment improve for the sixth month, with the index rising to -19.0 from -22 in August, while industrial confidence rose to -24 from -25, which was in-line with expectations.
U.S. dollar price action was mixed across the board, with the USD/JPY bouncing back from an eight-month low during the European trade, and the reserve currency may outperform going into the North American session as equity futures foreshadow a lower open for the U.S. markets. Meanwhile, consumer confidence is expected to improve for the second month in September, with economists forecasting the index to rise to a 15-month high of 57.0 from 54.1 in August, and the data is likely to encourage an improved outlook for future growth as households turn less pessimistic towards the economy. In addition, the S&P/Case-Shiller index may boost demands for the greenback as home prices are projected to fall at a slower pace in July, and housing conditions should continue to pick up over the coming months as the Federal Reserve pledges to hold the benchmark interest rate at the record-low for some time.
[B]Will The EUR/USD Remain Above 1.4000? Join us in the Forurm[/B]
[B]
Related Articles: [/B]
Forex Weekly Trading Forecast - 09.28.09
[I]To discuss this report contact David Song, Currency Analyst: <[email protected]>[/I]