A solid set of data out of the US strengthens the dollar as the market mulls over Carney's appointment
28/Νοέ/2012 • Currency Updates•
Sterling continued to trade fairly tight ranges yesterday, marginally losing ground to the Greenback, as the market mulled over the implications of the Canadian Mark Carney being appointed the New Governor of the bank of England in May. The announcement on Friday came as a surprise to many as Paul Tucker had been a clear favourite, with some major bookmakers not even offering odds on Carney’s appointment. Since the Libor rate fixing scandal embroiled the BOE earlier in the year, the appointment has been seen as a fresh start for the BOE with Carney set to sweep away dead wood and lead the BOE in its newer role as the ultimate city watchdog. Whilst in Canada he resisted the temptation to follow the other central banks into using QE to kick start the economy and this reduced chance of further QE in the UK could strengthen the pound in the medium term.
The OECD yesterday cut growth forecasts for the UK by a percent but this revision still puts the UK ahead of Germany and France who are predicted to see growth of just 0.6 and 0.3% respectively.
Finally, ONS figures confirmed that the UK had rebounded out of recession with the third quarter readings showing output had grown 1% on the previous quarter.
The euro initially rallied yesterday on the back of positive developments in Brussels in agreeing new terms on the Greek debt deal, with the Greek PM Antonis Samaras hailing a new dawn for the beleaguered sovereign.However, this rally was short lived after analysts studying the intricacies of the deal felt it lacked clarity and raised question marks over Greece’s actual ability to meet the revised austerity targets and payback timeline.
Pessimism in the market was exacerbated by a report from the OECD that warned of the continued potential for a global recession predicting a ‘hesitant’ and ‘uneven’ recovery in the next few years whilst revising down growth forecasts by 0.8%. It was bad news for France yesterday as unemployment levels reached a 14 year high whilst Boris branded President Hollande as ‘eccentric’ and anti business over his dispute with Lakshmi Mittal over the nationalisation of his furnaces in Florange.
In the US we saw better than expected data releases with the retail sales figures, consumer confidence, durable goods and home price data all printing above market expectations. This positive bout of data was reflected in the dollar index, which measures the currency’s performance against a basket of majors, which edged up from 80.226 to 80.345.
Corporations in the US have been rushing to pay dividends to investors to get ahead of the fiscal cliff with potential tax increases on dividends paid next year provoking the rush. With the fiscal cliff still providing a hot topic for market participants a survey by ratings agency Fitch conflicted with the OECD view and said that 82% of European bond managers think the cliff will be averted, and a deal will be struck before next year having only a short term impact on investor confidence.