Dollar looks to Bernanke speech for direction
• Dollar looks to Bernanke speech for direction• GBP hit as government borrowing figures worse than expected• BOE minutes scheduled for today• Euro stress test results eagerly awaited.
Data out of the worlds largest economy has witnessed what can only be described a shocking turn around of late. It was less than a month ago that markets were pricing in a US rate hike and the economy recovering quickly. A few weeks on and even the FED themselves have stated the path to recovery is a long one and growth may take 5 or 6 years to reach pre crunch levels. Even the spectre of additional stimulus is being dis-cussed in the form of QE2.The main release this week is the European stress tests but in the US investors will zero in on Federal Reserve Chairman Ben Bernanke's testimony to Congress scheduled for tonight, dissecting his statement for clues on the Fed's outlook for U.S. growth, which could offer guidance on the eventual tighten¬ing of monetary policy.
DATA—Bernanke testimony, Crude Inventories (Jul 16)
Mixed day for the pound yesterday saw GBP drop initially following the release of the government borrowing data. The release showed Public sector net borrowing hit £14.5bn in June, above the £13bn consensus among economists. If the trend continues, the Government will miss its deficit reduction target, raising fresh questions about the country’s ability to control its massive debt burden. Extrapolating this forward points to a full-year defi¬cit of about £152bn, about £3bn above the Office for Budget Responsibility’s Budget forecast. Deficit reduction is central to the Government's economic policy, as it seeks to shake off market concerns and preserve the UK’s AAA credit rating. Despite the gloom GBPEUR staged a comeback to bounce back above 1.18 although this was probably due to the sell off in EURUSD. Today brings the minutes for the July BOE meeting. Last month Andrew sentence was the sole dissenter in voting for a rate rise citing inflationary pressures. The rest of the committee are more concerned with the low level of growth and e expect this theme to continue in today's min¬utes so lets hope Mr Sentence is left out in the cold once again.
DATA—BOE July Minutes
The Euro fell back during mid morning trade yesterday following a 2nd failed attempt to break through 1.30 against the Dollar and also stalled above the 1.17 level against the Pound. The markets are keenly awaiting the release of the European wide stress test on the areas 91 largest banks (UK included) on Friday. The majority of traders are predicting a positive release but that said, if the results are too favourable for banks and areas that are clearly susceptible to further weakness in the financial markets, the test will be viewed as to easy to pass and therefore be counter productive to confidence. People are going to take the tests with a grain of salt if they show incredibly strong results for European banks," said Greg Salvaggio, vice president of capital markets at Tempus Consulting in Washington. "I don't think the market is going to believe it."
General: US bank results point to a dramatic slowdown in the investment banking industry Citigroup, Bank of America and JP Morgan have all reported double-digit percentage falls in revenues from their investment bank¬ing divisions, which just a year ago were at the heart of their recovery from the financial crisis that left each bank nursing large losses and looking for ways to pay back the US authorities for the support funds they received
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