Currencies Direct Review of The Pound
30, October 2009
The beleaguered pound was in demand yesterday reaching a six week high verses the euro and holding its own against the stronger USD due to a combination of short covering and negative Euro sentiment on the back of the recent slide in global equity markets. Stronger than expected UK mortgage approval data also added to reasons to buy sterling with mortgage approvals numbering 56,215 in September, up from 52,970 in August and better than the increase of 54,000 forecast.
There was however a cloud on the horizon in the shape of the M4 money supply data although the headline M4 grew by 0.8% in September taking the annual rate of growth to 11.6% the BOE’s preferred measure which excludes some non-bank financial intermediaries fell 0.9% on the month and declined at an annualized rate of 1.7%. So while there continues to be encouraging signs of recovery coming from the housing market the money supply figures will surely support the case for more QE next week.
Later in the day US Q3 GDP recorded a rise of 3.5% in line with expectations and the biggest quarterly increase since the third quarter of 2007. The last time GDP was in positive territory was during the second quarter of 2008. The figures show that the recovery was broad based with consumer spending, which makes up more than two thirds of economic activity increased by a healthy 3.2% compared to a fall of 0.9% in the previous three months. Residential investment which was the catalyst for the downturn jumped 23% contributing to GDP for the first time since 2005.
But don’t get too carried away it must be noted that the key drivers for both consumer spending and residential investment has been massive US government stimulus packages totaling some US$1.7trn, which have already or will come to an end eventually i.e. Cash for Clunkers. Business inventories declined at a slower pace this quarter falling by US$131bn compared to US$160bn last quarter. In a separate report weekly jobless claims fell by a modest 1,000 last week to 530,000 encouraging but with the weekly average running well above 500k it does not bode well for the Non Farm Payrolls data due next week.
Markets took heart from all this positive US data and as risk aversion abated, equity and commodity prices responded positively oh and the dollar got sold. As mentioned yesterday all eyes and hears will now turn towards the round of central bank policy meetings taking place next week for direction.
Other key data will be the forward looking Chicago PMI and University of Michigan confidence index. The Chicago PMI is expected to rise back to 50 this month after falling to 46 in September while the University of Michigan confidence index is forecast to remain little changed form the 69.4 reading in September.
Report from Tom Nadir
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The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.
Compiled by Tom Nadir.
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