Â·Fed sees economy
stabilising, but still emphasizes weak points
from surprisingly good German GDP data
Â·Weak US retail sales put dollar under fresh pressure
Growth surprise boosts euro
Patterns in the forex markets seem to be changing: over
a long period of time, whenever the crisis intensified, the dollar and the yen
benefited. The more confident market participants became, the more the euro
strengthened. Most other industrialised and emerging market currencies benefited
from increasing risk appetite as well. As confidence grows that the economy could
have bottomed out, markets are now focusing more on comparing developments in
individual countries, particularly the pace of recovery in these regions, and
when they could decide to end expansive monetary policies and quantitative easing
After the release of the US labour market report last Friday, both the euro and
the yen had suffered badly. USD-JPY rose by 2 Â˝ yen to 97.50, EUR-USD fell from
1.4350 to 1.4150. Then, however, in the run-up to the FOMC meeting, the US currency began to weaken again â€“ presumably mainly
because market participants were expecting the Fed to remain cautious and focus
on a continuation of its present monetary policy. The Bank of England could
have had an impact on market expectations too: the Inflation Report emphasized
that the interest rate hikes markets had been expecting would lead to inflation
undershooting the target.
The Fed, however, did not take such a decisive stand
as the Bank of England. The Fedâ€™s assessment of the economic situation was
slightly more positive than before: the phrase â€śthe pace of contraction is
slowingâ€ť was replaced by â€śeconomic activity is levelling outâ€ť. But the Fed
still underlined the weak points, particularly private consumption and
corporate investment. The announcement that the $300bn Treasury securities purchasing
programme was expected to be completed according to plan by the end of October caused
some confusion. Some people saw it â€“ to some extent in contrast to the Bank of
England â€“ as the beginning of an exit from quantitative easing. The marketâ€™s
reaction was only short-lived, however. This decision was in fact in line with expectations.
In the second half of the week, the dollar came under
fresh pressure after surprisingly good second quarter growth figures for the
euro area onthe one hand, and somewhat
disappointing US retail sales figures on the other. According to preliminary
estimates, the decline in real GDP in the eurozone slowed down from â€“2.5% to â€“0.1% quarter-on-quarter.
Compared with the previous year, the decline slowed from â€“4.9% to â€“4.6%. The
biggest economies in the euro area, Germany and France, have returned to positive growth rates (0.3%
respectively, quarter-on-quarter). In both countries, private consumption,
public spending and net exports had a positive impact, whereas corporate
investment continued to fall.
Then, however, the US retail sales figures dampened the upbeat mood:
instead of picking up as expected because of the US cash-for-clunkers scheme, they posted an 0.1% decline
in July compared with the previous month. The 2.4% increase in car sales was
not enough to push the total figure into positive territory. Sales fell in most
product groups, suggesting that new cars are perhaps being purchased instead of other goods.
The sales figures from the US were not good, but not abysmal either. The marketâ€™s
sharp reaction could indicate that market participants are well aware
of the risks to the upswing scenario â€“ the labour market and private
consumption: an upswing without private households is practically inconceivable
in the US. Markets will have to keep a close eye on consumption
data such as consumer confidence.
On the US side, we think it likely that the slightly favourable
trend in the macroeconomic data could continue for the time being. Next week will see
the release of the first August figures for the manufacturing sector, which is
benefiting at present from inventory re-stocking and the car scrappage scheme.
The housing market is also likely to continue to stabilise. From this point of view,
EUR-USD, presently at just under 1.43, could lose some ground again. In the
light of surprisingly strong GDP in Q2 and on the general assumption that the
ECB is likely to be more hawkish than the Fed, the euro should remain quite
well supported, however. It will presumably remain within the trading range for
the time being.
Rieke +49 69 718-4114
Grabbe / Klaus NĂ¤fken
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