Euro Helped by UK Central Banks Cautious Remarks

On FX markets, the action remain confined to relatively tight ranges. Of the moves that did register, sterling was carrying a weaker tone for much of the day. The currency was not helped by cautious remarks from BoE Governor Carney before the Treasury Select Committee, reinforcing the view that the Bank is in no hurry to hike interest rates. Elsewhere, for a second day running, Eurozone survey data surprised to the upside, with the German Ifo (Nov) coming in ahead of market expectations. This provided some helpful news to the euro.

Meanwhile on the dollar side, the second estimate of Q3 GDP printed in line with forecasts, while consumer confidence (Nov) surprised to the downside. Dollar-impact from the data was fairly limited.

All of the above, translates into some slight weakening of sterling against both the euro and the dollar. EUR/GBP has edged up from the 70p mark, while GBP/USD is straddling $1.51. At the same time, a slightly firmer euro has the EUR/USD pair opening this morning in the upper half of the $1.06-1.07 range. Today sees no data releases of note in either the Eurozone or UK.

A picture of the US economy

For the third quarter, the US economy posted annual GDP growth of 2.1%, not the 1.5% it posted last month. Despite the dip in consumer confidence, more consumers plan to purchase big ticket items (houses/cars) in the next six months. Additionally wage growth throughout the quarter increased by $109.3 billion, $61.9 billion more than originally planned.

While it is believed that the economy will reached the targeted 2% GDP growth for 2015. It is expected that the fourth quarter will not be a stellar end to the year, because companies accumulated a lot of inventory throughout the third quarter. This increased accumulation of inventory is expected to hang on fourth quarter GDP growth.

Overall, indicators look very promising for the Federal Reserve to move interest rates in December. Additionally, it looks like the US economy will enter 2016 on a very stable footing which is good for the world economy.

UK central bank still decoding employment market

The UK’s central bank is still at odds with the labour market. Especially as yesterday, Bloomberg reported that productivity is technically 15% below levels from pre-crisis if it was to have been sustained.

However this year has seen the labour market met pre-crisis productivity. I do believe that the 15% is misleading, because the Western world experienced the worst financial problem ever recorded. One good indicator is that wage growth within the UK is power ahead during this current stage of weak inflation growth which may mean that people will be able to sustain a certain living standard while working less hours.

Five points from Glenn Stevens, Governor of RBA

Royal Bank of Australia governor, Glenn Stevens spoke to economist this week and had five main points:

1. Australia’s economy is likely to ‘pick up a bit’ as mining investment slows and the effects of interest rate cuts take off
2. The non-mining markets seems to be doing better, with strong employment
3. The reserve bank is not worried about inflation hindered it from cutting interest rates
4. Stevens expects Federal Reserve to move interest rates in December but then not make a move for quite a while afterwards. In fact, he states that for the next decade interest rates globally will remain low
5. Even though China is important, Chinese demographics are poor in terms of age. However he questions whether Australia is prepared for India

Read more with the Sydney Morning Herald

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