Despite improving European GDP figures on Friday and overwhelmingly positive trade balance data this morning, the Euro is still struggling as pressure mounts on the currency by the talk surrounding Irish debt as well as Greek and Portuguese solvency. This morning’s trade balance figures showed a great level of expansion for the month of September which brought Europe from a trade deficit to a significant trade surplus. However as rumours increase that Ireland may have no choice in accepting European help the Euro is suffering as the Dollar broadly benefits.
Pound Sterling – UK Markets
The month on month Rightmove UK house price index has registered a fall of -3.2 percent for November – the largest monthly drop since December 2007.
Over the course of last week’s trading, the pound gained 2% against the Euro and 0.4% against the Yen, but it slipped back by 0.7% against the Dollar.
This morning’s Rightmove price housing decrease of -3.2 percent follows an increase of 3.1 percent in October. Although the year on year index is still showing an increase of 1.3 percent analysts believe this may be heading towards zero over the coming months as property prices continue to fall – this will add pressure to the Pound as property is always seen as a key sector of the UK economy.
Tomorrow’s consumer and retail price index data is expected to underline inflation pressures. The key UK economic event to watch this week is the release of the Bank of England policy minutes at 10am on Wednesday from the last policy meeting. These are expected to reaffirm the findings of last week’s inflation report which caused a rise in Sterling. The policy minutes of the past few months have shown a tendency to provoke a shift in the rates so catch up with your currency broker before Wednesday this week to discuss how to handle any transfers involving Sterling.
US Dollar – US Markets
The Dollar strengthened against the Euro, Sterling and Yen over the course of last week (by 2.7; 0.7 and 1.1% respectively), posting its largest one week rise since early August.
Positive news on the US economy appeared on Friday when the consumer sentiment index beat expectations to register a rise. The Dollar has also benefited from the continued European concerns on whether Ireland will need to call on EU funding as well as the solvency of Portugal and Greece.
President Obama said that countries with large trade surpluses should take steps to encourage domestic demand rather than rely on exports to the US to ensure growth. The comments were made at the APEC summit and were largely aimed at China and Japan, analysts say.
This afternoon sees some significant US data releases including the NY Empire State manufacturing index and retail sales which are expected to show an improvement.
Euro – European Markets
European trade balance figures released at 10am this morning have revealed a positive trade surplus of 2.4 billion Euros for September following a weak trade deficit the previous month.
The figure is also far above the predicted surplus of 1.3 billion Euros indicating how a weak Euro had boosted European exports. The Euro showed a minor pick up against Sterling this morning but this has since reversed. Added to Friday’s positive European GDP figures the overall picture of European economic health is improving.
However, speculation on both the state of Greek and Portuguese debt as well as the state of the Irish economy is the focus of markets. Rumours, denied in Dublin, persist that the Irish government will need a Greek-style bailout from the EU to help it to meet its obligations as yields on Irish bonds continue to rise. The current Irish financial problems are due to be discussed in Brussels tomorrow when EU finance ministers meet. It is thought that the EU may urge Ireland to accept help to avert a Greek-like crisis.
Other Currencies – Highlights
In a move that surprised many observers, Japan showed third quarter growth of 0.9%.
This figure compares favourably with the Q2 figure of 0.4% and has been attributed to spending pulses on “green” cars and cigarettes. The subsidy on environmentally friendly cars has ended and cigarette tax is due to rise. The better than expected figures were due to increased domestic spending which is immune from the higher value of the Yen which is predicted to hurt Japanese exports.
Leaders of the Asia-Pacific Co-operation forum (APEC) have agreed on the vision of creating a free-trade zone which would embrace all of the 21 member group. If such a zone comes into being, it would incorporate the world’s three leading economies; America, China and Japan. However, for this to become a reality, the issue of trade imbalances and perceived currency distortions (most notably between China and America, but also between Japan and South Korea, for instance) would need to be resolved. The two day meeting was held in Yokohama, Japan.
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