GBP down vs EUR but up vs USD
Risk appetite, along with the US dollar, took a dip on Friday as some poor corporate earnings reports and a extremely weak consumer confidence survey, damaged optimism. The consumer confidence figures fell to a level last seen in the nadir of the credit crunch in August 2009, and coming after some disappointing retail sales, further damage the idea that the American consumer can drive the global recovery. The poor corporate reports came from General Electric, Bank of America, and Citigroup, which contributed to the S&P500 falling 2.9%. Normally doubts over global growth give the Dollar a boost as it benefits from it’s safe haven status, but with Dollar yields extremely low after the Fed’s dovish rate outlook, the currency has suffered allowing the Pound to push above 1.53, and the Euro managed to break above 1.30 on Friday. The dollar may come under some pressure in the coming weeks, after the disappointing data from china, the global picture is vulnerable to weak corporate earnings reports, but with US dollar yields so low it is unlikely to benefit much from weak or strong data.
The Euro has been on the front foot rising not just against the Dollar, but also against the Pound, dragging down Sterling to levels not seen since the beginning of June. The Euro has seen the benefit of some successful bond auctions by its troubled nations, as well as expectations that the release of the banking stress tests, released this Friday, will show little problems within the Eurozone finance industry. Although the markets are now seemingly more optimistic over the release of Friday’s stress test results, there is still a risk it may provide a shock, but for now at least the worst of the Euro’s woes seem to be behind it.
With the UK’s release of the first estimate of Q2 GDP, along with UK retail sales on Thursday, and the MPC minutes on Wednesday, it will be a busy week in the UK. The week starts of slow though, and we will have to wait until the Public Finance minutes tomorrow for the first bit of UK news, until then the Pound looks to be under a bit of pressure against the recovering Euro, although it should be steady against the Dollar.