Will China pull the plug on US?
Rounding off from Friday’s performance, the USD held onto its gains following a late rally versus Sterling. However, the pair ran into some Dollar selling activity around a key level of support as the rate held firm. The move was in part attributed to strong manufacturing figures from the US which showed expansion through October and growth in the previous month.
Today we look at Stateside new home sale numbers on what is something of a peaceful day in terms of tier one data. Last week, strong existing home sales data propped the Dollar up, so, despite slightly more conservative consensus figures, analysts may be quietly confident of strong data.
News filtering through suggests that the People’s Bank of China (PBoC) are considering the idea of unpegging the RMB from the USD. As China are becoming increasingly impressive when seizing the right opportunities for monetary easing, it could provide yet another interesting aspect to prompt price action. We saw what happened when the Swiss Central bank unpegged the Franc from the Euro…could another meltdown be in the offing?
Sterling gained 2% versus the Euro last Thursday and, significantly, has held firm over the weekend despite Mark Carney’s comments that a UK rate hike was not a certainty. The strong UK retail sales report released last week didn’t prevent a sell-off on Friday against the Dollar pushing Sterling down 0.5%. Tuesday morning will see the release of UK GDP data. The UK’s economy expanded 0.7% in the second quarter, compared to a 0.4% growth in the previous quarter. Economic output was 2.6% higher than in the same period a year ago. This was the tenth quarter of sustained economic growth. Industrial output figures registered the biggest increase since late 2010, rising 7.8%. Domestic demand is rising due to low inflation boosting consumer spending. However, there are still risks in the world economy with instability in the Eurozone and in China. UK GDP is expected to reach 0.6% in the third quarter.
The Euro took a battering last week following indications from the European Central Bank that quantitative easing could well be extended in December. Following the comments, EUR/USD took a slide by more than 250 pips. The Euro has since clawed back a little strength against Sterling as the market consolidates the heavy losses of last week’s sell off.
Any alteration of the Euro rate today will likely be from German IFO expectations and assessment, as this is the only main highlight for the Eurozone today. Markets will be poised to see if the there is further room for the Euro to fall this week and possibly for the rest of year now that continued stimulus has been hinted at. With the floor falling out from under the Euro, all that money has to find a home somewhere and that home seems to be in Swiss Francs, causing consternation for the Swiss National Bank and the nation’s exporters.