Everything seems to be turning up roses for the US economy at the moment, as another session was dominated by better than expected US data and a stronger US dollar. Home prices and consumer confidence, which rose to a 5yr high, both beat expectations and, coupled with the news that S&P had upgraded their rating of the US banking sector, the market was only going to travel one way.
That exuberance has carried over into the Asian session overnight, with the USD continuing from where it left off. It seems almost obvious now that GBPUSD should test the years lows of around 1.48 with EURUSD under similar pressure towards its year-to-date low of 1.2750.
The commodity currencies continued to get hurt yesterday as fears over growth came to the fore. The main mover yesterday was South African which came in for a beating following further strikes by miners in recent months leading to a 7.1% fall in industrial production and a hit to growth that led to a below expectation GDP print of 1.9%. ZAR has lost 1.7% vs the pound in the past 36hrs as a result.
We forecast at the beginning of the year that the Aussie dollar was likely to be one of the ‘Dogs of 2012’ and overnight the currency has become a lot more canine. Poor construction data has caused local banks to revise GDP estimates lower while PIMCO, the world’s largest bond investor, called for another RBA rate cut sooner rather than later in a research note which came out this morning. AUDUSD is currently close to a 19 month high while GBPAUD is at an 8 month high.
Focus on Europe will likely dominate today with the European Commission delivering its evaluation of the budget plans of the EU-27 this morning. Today’s FT is leading on a story that France, Spain and the Netherlands are to be given a ‘waiver’ on the need to hit their 3% annual deficit limit. This could be a sea-change in the move away from austerity in the Eurozone, although the switch to growth is by no means as easy as limiting the discipline.
The shift away from austerity is designed to promote employment and we shall see this morning whether German divergence from the rest of Europe has continued as we get unemployment details for the month of May. The market is looking for unemployment to rise by 5k.
UK data is due in the form of CBI reported sales which, somewhat strangely, the market is expecting to increase. Labour market indicators have remained onerous of late and we would be very surprised if this has led to an increase in sales. A disappointment here could easily be the release that puts GBPUSD through 1.50.