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EUR: Two Down, Four More Hurdles To Overcome

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TODAY'S BIGGEST PERCENTAGE MOVERS

THE STORIES IN THE CURRENCY MARKET

EXPECTATIONS FOR UPCOMING FED MEETINGS

CURRENT US INTEREST RATE: 0.25%
8/09 Meeting 9/20 Meeting
NO CHANGE 70.1% 60.0%
CUT TO 0BP 29.9% 40.0%
HIKE TO 50BP 0.0% 0.0%

EUR: TWO DOWN, FOUR MORE HURDLES TO OVERCOME

1. Win no Confidence Vote

2. Get Parliament to Approve Austerity Plan

USD: DEBT CEILING TROUBLES START TO HURT USD

nd

GBP: SHRUGS OFF WEAKER DATA

With a positive outcome of the Greek Austerity vote, the return of the risk appetite drove the British pound higher against the US dollar. Meanwhile, the euro remained relatively flat versus the pound. The market shrugged off more discouraging news from the UK as the Greek Saga took the center of the stage. The mortgage approvals printed at 45.9K versus 46.3K forecast. The figures indicate weakness in the housing market and further reflect the drop in consumer confidence. In addition, the output of UK service sector fell 1.2 percent between March and April. The Office of National Statistics said April was an unusual month due to the royal wedding and an extra public holiday, which combined to affect services output. Furthermore, another contributing factor as suggested by the ONS was the warm weather, which may have prompted people to take extra leave during the month. While the output of hotels and restaurants benefitted from the pleasant weather, the distribution output and business services took hits, falling by 2.5 percent and 1.3 percent respectively. Nevertheless, since the service sectors make up of three-quarters of the UK economy, the weakening signs in the report show that the recovery is stalling. Combining that with a concern for inflation, the Bank of England faces a great dilemma. Among the members of the Monetary Policy Committee, the BoE's Deputy Governor Paul Tucker took a more hawkish stance in his comments yesterday to the Treasury Select Committee. While Mr. Tucker revealed that he is close to voting for a rise in interest rates, the bank Governor Mervyn King remained dovish. Until there are signs of sustainable growth in the economy, Mr. King would more than likely keep the interest rate at the current level. However, with rising inflation eating away at disposable incomes and Mr. Tucker's more hawkish sentiment, the day of a higher cash rate may not be too far away. Nationwide house prices are due for release tomorrow and it is not expected to have a major impact on the pound.

AUD: GOLD DOWN BUT OIL UP 2 PERCENT

As the market breathed a sigh of relief today after Greek passing the Austerity package, traders loaded up on the high-yield currencies driving the Australian, New Zealand and Canadian dollar higher against the US dollar. In addition, the increase in the commodity prices also gave boost to the kiwi and the Aussie. With the Canadian consumer price index at 3.7 percent, exceeding the forecast by 0.4 percent, traders are pricing in a possible rate hike from the Bank of Canada. The core inflationary measure also surprised market's expectation printing at 1.8 percent year-over-year versus 1.5 percent eyed. Since the country's central bank has forecast that the yearly core rate would hold at 1.4 percent for this quarter, the surge in CPI may prompt the Governor Mark Carney to implement a rate hike sooner rather than later. In addition to the threat of inflation, a major independent research firm warns that the Canadian housing bubble is set to burst. According to the report published by Capital Economics, there could be a fall in house prices by as much as 25 percent over the next years. The burst of housing bubble would not only hurt consumption but also shrink real estate investment. As Canadians expect to cut back on spending in the second half of the year, the crash of the housing market is the last thing the market would like to see. Although the export dependent Canadian economy is prone to external instability, the domestic issues also came into the spotlight as the jump in CPI data revives thoughts of BoC rate hike. Looking ahead, we expect the business confidence data from New Zealand tonight and private sector credit from Australia along with Canadian GDP numbers.

JPY: SHARP RISE IN FACTORY OUTPUT

EUR/CAD: Currency in Play for Next 24 Hours

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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