USD under pressure but GBP failing to make serious gains
Amidst a fairly quiet day for the markets yesterday, the main story of note came via the mainstream press in an article from the Wall Street Journal. The emergence of a story in the WSJ by Fed watcher Jon Hilsenrath has prompted a deeper correction in the USD’s recent decline and appears to have divided FX sentiment further. The article claims that Fed officials want to avoid the shock and awe style used during the GFC in favour of treasury purchases of a few hundred billion USDs over several months, allowing them to adjust policy and possibly adding to purchases over time as the recovery unfolds. Essentially the Fed is thought to be considering a more measured approach in unveiling additional QE measures at next week’s meeting. Based on his previous record, Hilsenrath’s work is given fair credence by the market, who see him as having a key ‘in’ at the Fed. The expectation of lesser QE has thus strengthened the Dollar, reversing the gains made by the Pound after Tuesday’s positive UK GDP data. It has not been clear whether market’s $1tln plus guesstimate for QE refers to the final amount being spent rather than an upfront announcement next Wednesday at 1915 GMT. Even with a more staggered approach the Fed may end up buying assets totalling $1trln or so. The WSJ story however, provides the perfect cover for a further bout of USD buying as the FX market is still very short of USDs and opinion on where from here is becoming more divided.
There’s little data out this morning of interest. Already released in the UK is the October Nationwide House Price Index, which showed a fall of 0.7% on the month, with the annual rise falling to 1.4% (from 3.1%). The index has now fallen in three of the last four months, and the more forward looking evidence from the RICS survey points to a prolonged period of weakness ahead. The news has seen Sterling weaken against the Euro, though the pound has held on to most of the gains it has made against the single currency this week so far. With UK GDP coming in above expectations in Q3 and speeches from MPC members this week giving little away, views that the Committee may be poised to launch another round of QE at next week’s meeting have receded. The CBI Distributive Trades Survey will give a reading on the state of retailing in October and expectations for November. The index though has not done a particularly good job as predicting the official data of late.