Euro strengths against USD and GBP
Despite a rally on Wall Street and through Asia, European bourses are expected to open lower this morning. Asian markets responded to a strong Australian employment report, which followed a pattern of strong data over the past week. There had also been a positive reaction to EU Commission President Barroso’s speech yesterday afternoon in which he unveiled a roadmap to solve the European sovereign debt crisis. With Slovakia set to approve the extension of the EFSF either today or tomorrow, there is a hope that Europe’s leaders will be able to agree a comprehensive plan on 23-24 October before getting approval for it at the G20 Heads of State Meeting on 3-4 November.
Yet European bourses have opened lower this morning, although this could simply reflect some profit-taking after the recent run-up as well as reflecting the rally in the single currency over the course of the month. Euro-dollar slid to a low of $1.3145 on 4th October and is now at $1.3814. The single currency has made less progress against sterling, which reflects the fact, that some of the move against the greenback reflects dollar weakness after the Fed launched ‘Operation Twist.’ Euro-sterling has risen from a low of £0.85307 in early October to £0.87754 this morning. Cable meanwhile has rallied from $1.5272 to $1.5741.
Oil prices eased off from yesterday’s highs and the front Brent contract is currently at $111.86 ahead of today’s US stockpile report. Both the IEA and OPEC have revised down their forecasts for global oil demand, which has added to market nervousness.
UK trade data today will help set the expenditure side of GDP in the third quarter. The market is looking for the total trade deficit to narrow from £4.45 billon to £4.25 billion, which would imply that net trade will drag on growth in the third quarter.
As with the UK, US trade data for August will be a key determinant of Q3 GDP growth. Since September data will not be published before the flash estimate is published on 27th October, the Bureau of Economic Analysis will use July and August data to proxy for Q3. However, while net trade should contribute to Q3 GDP growth, it will not be as large as the depreciation in the US dollar would suggest. The ISM manufacturing export orders component has been trending downwards in recent months, reflecting the softening in global demand following the Japanese earthquake in March. But if export growth has been disappointing, import growth has also stalled reflecting not only the weak US dollar, but also some overstocking of inventories. That trend should continue, which leaves trade contributing a small amount to Q3 GDP growth.
What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.