US Dollar bounces back
The dollar recovered slightly from a brief dip following weak durable goods orders, as market participants had time to digest the volatile data to decide they were not as bad as feared.
Durable goods orders in the world's largest economy came in far below expectations, dropping 4.9 % in August, and by 1.8 % excluding transportation goods, compared with forecasts for declines of 3.1 % and 1.2 % respectively. The August orders report looks weak at first blush.
But the decline should not be too much of a surprise, especially in view of the unsustainable upward spikes in machinery and motor vehicles orders in July. The order backlog still remains solid, and shipments moved up by 0.8 % in August, suggesting that business equipment and software investment is still on track to make some positive contribution to third quarter growth.
The dollar was still at close to record lows against the euro though following Tuesday’s disappointing housing and consumer confidence data.
The market will look to today’s GDP and new home sales data to provide further signs on how the US economy is performing after the summer's turbulence. The final GDP number for the second quarter is expected to be revised down slightly to 3.9 % from the initial 4.0 % reading. New home sales for August are expected to fall to an annual rate of 830,000, down from 870,000 the prior month.
Meanwhile, the pound fell back as anxiety resurged over a Bank of England report that showed lenders expect credit conditions for businesses to tighten further in the next three months. The pound was also pressured by growing speculation that the BoE's next move in its monetary policy will likely be to cut interest rates in the face of this growing risk.
We do believe there is a high probability that interest rates will fall sharply over the next 12 months as the BoE attempts to fend off any further potential fallouts from the current credit market turmoil.
Yesterday the Pound got a mild boost after it emerged that the Bank of England's auction of 10 bln stg worth of emergency funds, at an interest rate of 6.75 %, was completely ignored by commercial banks.
Analysts had expected scant take-up of the auction because the Libor rate has been falling sharply in recent days, as banks become more willing to lend to each other again. The zero-bid result, however, came as a surprise and helped offset earlier sterling weakness, which followed a BoE report that showed lenders expect credit conditions for businesses to tighten further in the next three months.
The prospect of more expensive, less available credit increases the downside risks to business confidence, investment and employment over the coming months, and is likely to increase expectations that the BoE could trim its benchmark interest rate before the end of the year.
The euro meanwhile, showed little lasting reaction to a weak confidence reading. The GfK market research institute said its consumer climate index for Germany is forecast to fall to 6.8 points in October from 7.4 points in September, which was revised down from 7.6 points. The October reading missed economists' expectations for a smaller decline to 7.0.
Earlier, the European Central Bank injected 50 bln eur into money markets via a longer-term refinancing operation. This compares with 75 bln eur leaving the market on the expiry of a previous longer-term refi.
Elsewhere, the Australian dollar strengthened, buoyed by stronger metals and oil prices and Norway's central bank raised its benchmark rate for the sixth time this year to 5%, following rate increases earlier this month by Switzerland and Sweden.
The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.
Durable goods orders in the world's largest economy came in far below expectations, dropping 4.9 % in August, and by 1.8 % excluding transportation goods, compared with forecasts for declines of 3.1 % and 1.2 % respectively. The August orders report looks weak at first blush.
But the decline should not be too much of a surprise, especially in view of the unsustainable upward spikes in machinery and motor vehicles orders in July. The order backlog still remains solid, and shipments moved up by 0.8 % in August, suggesting that business equipment and software investment is still on track to make some positive contribution to third quarter growth.
The dollar was still at close to record lows against the euro though following Tuesday’s disappointing housing and consumer confidence data.
The market will look to today’s GDP and new home sales data to provide further signs on how the US economy is performing after the summer's turbulence. The final GDP number for the second quarter is expected to be revised down slightly to 3.9 % from the initial 4.0 % reading. New home sales for August are expected to fall to an annual rate of 830,000, down from 870,000 the prior month.
Meanwhile, the pound fell back as anxiety resurged over a Bank of England report that showed lenders expect credit conditions for businesses to tighten further in the next three months. The pound was also pressured by growing speculation that the BoE's next move in its monetary policy will likely be to cut interest rates in the face of this growing risk.
We do believe there is a high probability that interest rates will fall sharply over the next 12 months as the BoE attempts to fend off any further potential fallouts from the current credit market turmoil.
Yesterday the Pound got a mild boost after it emerged that the Bank of England's auction of 10 bln stg worth of emergency funds, at an interest rate of 6.75 %, was completely ignored by commercial banks.
Analysts had expected scant take-up of the auction because the Libor rate has been falling sharply in recent days, as banks become more willing to lend to each other again. The zero-bid result, however, came as a surprise and helped offset earlier sterling weakness, which followed a BoE report that showed lenders expect credit conditions for businesses to tighten further in the next three months.
The prospect of more expensive, less available credit increases the downside risks to business confidence, investment and employment over the coming months, and is likely to increase expectations that the BoE could trim its benchmark interest rate before the end of the year.
The euro meanwhile, showed little lasting reaction to a weak confidence reading. The GfK market research institute said its consumer climate index for Germany is forecast to fall to 6.8 points in October from 7.4 points in September, which was revised down from 7.6 points. The October reading missed economists' expectations for a smaller decline to 7.0.
Earlier, the European Central Bank injected 50 bln eur into money markets via a longer-term refinancing operation. This compares with 75 bln eur leaving the market on the expiry of a previous longer-term refi.
Elsewhere, the Australian dollar strengthened, buoyed by stronger metals and oil prices and Norway's central bank raised its benchmark rate for the sixth time this year to 5%, following rate increases earlier this month by Switzerland and Sweden.
The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.
Labels: interest rates, Weak Sterling
posted by Wise Money @ 10:21 AM
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