The currency blog

The Federal Reserve minutes released last night show the FOMC expect inflation to remain subdued over the coming months, some members even revised down their estimates due to the ongoing problems in financial markets around the world. The Fed also noted that they expect unemployment to continue to rise and now forecast that full economic recovery could take five to six years. The dovish tone and disappointing advanced retail figures yesterday, 0.5% against a forecast of 0.2%, has allowed Sterling and the Euro to push higher vs the Dollar.

With the Q2 earnings season well underway, and a string on companies showing strong results, there seems to be a growing disconnect between positive data on the micro level and the increasing pessimism of macro level data. As austerity measures around the world start to bite, what is good for individual counties, namely saving money and paying down debt, is not good for the world as a whole through reduced consumer spending and growth levels. Although this trend in worrying for the global economy, it may be good for the dollar, as the worlds safe haven currency, if cash becomes the asset of choice then the greenback will perform strongly.

Sterling has been lifted across the board by positive unemployment data yesterday, data from the ONS showed the ILO figure dropped to 7.8%, the lowest since January. Also helping to lift Sterling was the GDP figure from Monday, which although came in on target, allayed some fears that Britain had slipped back into recession.

The Euro continues its recent strength as the markets wait for results of the stress tests currently being conducted on European banks. Several reports of banks passing the tests has been completely ignored by the markets, which wait for the official realise on the 23 of July, but will want explanations on the haircuts imposed on holdings of PIIGS debt. The single currency has also faired well after the successful Greek & Spanish bond auctions earlier in the week.

We are light on data on this side of the Atlantic, but in the US we have PPI and CPI figures today and tomorrow.

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