Sterling hits 7-week high against dollar following Carney's forward guidance statement

Tom Tong09/Aug/2013Currency Updates


The dollar continued to weaken for a fifth session in a row due to uncertainty surrounding when the Fed will begin to reduce its stimulus package. This week has seen several prominent Federal Reserve officials discuss their willingness to begin tapering as confidence in the US economy grows. Earlier in the week Chicago Fed president Charles Evans stated he would not rule out the possibility of dialling back purchases at the September 17th-18th gathering of the FOMC, particularly as the labour market ‘remains on a stronger path’. Yesterday Dallas Fed President Richard Fisher, who has always been an ardent critic of the quantitative easing programme, said it was ‘timely’ for central bankers to end the stimulus programme.

Data released from the labour department showed the number of workers filling for new claims for unemployment benefit rose slightly to 335,500, but was near its lowest level since November 2007.

There is no Tier 3 data released today, however, the dollar could be vulnerable to an increase in market volatility if Chinese industrial production data, which is released today, adds to a growing view that Beijing is taming its economic slowdown resulting in risk-seeking investors selling the dollar.


The pound rose to its highest level against the dollar yesterday since June on the back of reforms to monetary policy announced by new BoE boss Mark Carney. The BoE released guidance on the necessary conditions for rates to rise on Wednesday, with Carney’s announcement intended to reinforce the Bank’s monetary easing, whilst sending Sterling up.

The BoE now expects 1.4% growth in the UK this year, improving to 2.4% in 2014 – above its earlier estimate of just 1.7% growth for next year. Economic data from the UK has painted a bullish picture of the UK’s recovery. Yesterday, the Organisation for Economic Co-Operation and Development (OECD) released figures suggesting that UK growth is ‘firming’.

With forward guidance in place, and a modest recovery unfolding, it seems that the UK economy is growing. However, this is partly supported by US weakness, which most analysts expect to strengthen towards the back end of the year.


The Euro has recently surged up against the USD; potentially showing signs that economic recovery in the single currency area is becoming more tangible. However, this rise is mainly being supported by a monthly surge in German exports, and may not be sustainable.

Germany reported that the trade surplus grew to 16.9bn Euros in June from 13.6bn euros in May. Official data released today revealed that the volume of German shipment’s abroad went up by 0.6% in June month-on-month, after sagging in May. We have also seen positive data from France and Italy this week, suggesting that Germany may receive some support from its fullbacks.

However, Greece remains a significant thorn tearing into this recovery: May’s figures on the number of jobless in Greece increased to 27.6%, up 1.38mn people – the highest of any country in the Eurozone. The level of unemployment for under-25s reached 64.9%, raising serious concerns at the prospect of another bailout for the Eurozone’s black sheep.

The ECB’s monthly bulletin was released yesterday, making further indications that it expects inflation to remain low, allowing the bank to keep interest rates down for an extended period. The ECB has dropped its forecast for inflation this year, down from 1.6% for 2013 and 1.7% in 2014 to 1.5% for both years, even further away from the official target of just below 2%. The ECB also projected that unemployment would rise across the Eurozone into 2014, set to decline in 2015.

There are no major data releases from the Eurozone today.


Written by Tom Tong

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