The currency blog

Stock markets have taken fright at yesterday’s generally weaker-than-expected US economic data, with Treasuries moving higher. Final Q2 GDP figures showed a fairly benign 0.7% annualized pace of contraction against a consensus estimate of -1.2%. But the combination of a weak ADP and Chicago PMI report has cast fresh doubt on the sustainability of the US economic recovery, notwithstanding the noticeably firmer FOMC policy statement last week.

Alongside de-leveraging in the household sector, weak labour market conditions pose one of the biggest threats to consumer activity going forward. The ADP employment survey was not especially encouraging in this regard, with a fall of 254k in September against a consensus estimate of -200k. More often that not, the survey registers a bigger fall (or rise) compared with the corresponding non-farm payrolls data. So there may be scope for disappointment in Friday’s employment report, where the consensus stands at -180k. In summary, there seems little room for complacency so early in the economic recovery process - a point made repeatedly by central banks.

Sterling again has run into selling pressure against both the US$ and Euro at $ 1.60 and 1.10 respectively and these will remain short term barriers to any moves higher.

The US$ continues to gain ground as again nerves surround the equity market and the belief that a correction is round the corner .Keep an eye on Euro US$ as since hitting a high of € 1.4850 we now trade down as low as € 1.4550,a break of € 1.4500  could see moves down to € 1.40  and beyond.

Discuss on this on the Currency Exchange Forum