Single Currency and Sterling weighed by profit taking

07-23-2009 12:15

The British Pound remained affected during last night’s trading prior to a short period of positive sentiment, caused by the Bank of England’s minutes regarding July’s policy meeting. The BoE voting resulted in 9-0 in favor of maintaining the benchmark rate and continuing the purchase program due to lack of proof to back an adjustment. Still, the Monetary Policy Committee (MPC), a committee of the Bank of England, stated that they will continue to discuss the amount of the asset purchase program, which could leave room for additional quantitative measures.

Additional quantitative measures?

Charles Bean, deputy governor at the central bank of the United Kingdom, commented that the BoE had not postponed indefinitely its quantitative easing plan, which created rumors that additional measures could be the result of the meeting in August when they discuss the survey regarding price rises. Nevertheless, the tone of the minutes implicates that the MPC might continue to weigh the effects of their previous attempts carefully ahead of additional measures. There is anxiety over the purchase program not producing the projected results, on which calls for additional purchases would vanish. However, credit conditions will progress on the back of banks recapturing confidence, according to Bean, who also commented that the British economy seems to improve.

Unwilling to durables

The Single Currency continues its level of 1.4164, while EU industrial new orders fell surprisingly. In May demand dropped 0.2% as it was expected to rise 1.9%, while orders for durables declined 1.5%. Consumers were unwilling to acquire durable goods while they examined carefully discretionary acquisition. Nevertheless, capital goods orders rose 0.4%, which proves that the business prospect is progressing. French clothing acquisition increased 3.5%, as consumer spending went up 1.4% while 0.3% was expected. Furthermore, the report proves that durable goods consumption increased 1.3% which might implicate that optimism is rising. Risk sentiment continues to boost EUR/ USD flows and this might compensate additional declines, while equities in the EU continue to moderate as US futures implicate a lower commencement.

Decreasing risk appetite

During last night’s trading session the Greenback traded firmly due to profit taking as a result of diminishing risk seeking as stock markets show important resistance levels. Various Dow Jones Industrial Average elements exceeded earnings’ forecasts yesterday, together with CAT (Caterpillar Inc.), while earnings season will remain a major point of interest. Fluctuation could be the result of Ben Bernanke’s speech before the Senate Banking Committee. Yesterday’s comments by the chairman of the FED resulted in negative reactions as he notified challenges for credit markets and continued increasing unemployment. He ended his speech by stating that the outlook in general is positive. The house price index and the mortgage applications by the Mortgage Bankers Association (MBA) will clarify the situation of the housing sector.