U.K.’s Value Added Tax (VAT) Cut Spurs Household Spending, Mortgage Approvals Fall 43%

Fundamental Headlines

• AIG Seeks to Ease Its Bailout Terms – Wall Street Journal
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• Honda names Ito as new chief executive – Financial Times
• China Said to Plan $3 Billion Investment in Fortescue – Bloomberg
• Goldman Sachs Said to Be Cutting Japan Research Team – Bloomberg

GBPUSD – The U.K. CBI trades survey rose to -25, the highest since June 2008, from -47 in January, which was in-line with the retail sales figures from the previous week, and reflects the effects of the value added tax (VAT) cut and the heavy discounting held by retailers during the holiday season. Moreover, the outlook for the private consumption rose to -33 from a series low of -52 for February. Meanwhile, a separate report showed that mortgage approvals in the U.K. rose to 23,376 from a revised reading of 22,416 in December however, the reading is still down 43% from a year earlier, and lending activity is likely to remain subdued throughout the first half of the year as credit conditions remain far from normal. Despite the minor improvement in the retail sector, the outlook of the U.K. remains bleak, and the Bank of England is likely to adopt unconventional measures in order to steer the economy out of a deepening recession. Discuss the topic and your trade ideas in the GBP/USD Forum.

CHFUSD – The UBS Swiss consumption indicator dipped lower to 0.985 from a revised reading of 1.184 in December as households remain fearful of a deepening recession throughout the economy. Meanwhile, a separate report showed that employment rose at a slower pace in the fourth quarter as payrolls grew 1.6% from year earlier to 3.963 million, compared with an annual rate of 2% in the previous quarter. Households are likely to cutback on spending in the months ahead as companies continue to scale back on production and employment in an effort to cope with the downturn in the global economy. The outlook for the export-driven economy remain bleak as the Euro-Zone, Switzerland’s biggest trading partner, faces its worst recession since World War II, and as the Swiss government forecasts the annual rate of growth to contract 0.9% this year, policy makers could be forced to step up their efforts in order to avoid a deep and severe contraction in the economy. For more news and resources, visit the new Swiss franc Currency Room.

EURUSD – The German IFO business confidence index unexpectedly fell to a record low of 82.6 from 83.0 in January as firms remained fearful of a deepening recession throughout the euro-region. The breakdown of the report showed that expectations for future growth increased to 80.9 from a revised reading of 79.5 in the previous month however, as the International Monetary Fund forecasts Europe’s largest economy to face its worst economic slump since 1946, the outlook for growth remains bleak. Meanwhile, industrial new orders for the Euro-Zone fell for the fifth month as the index dropped 5.2% in December following a 5.4% decline in the previous month, which reinforces a dour outlook for the economy as demands from home and abroad deteriorate. Nevertheless, as trade conditions falter, the European Central Bank is widely expected to lower the benchmark interest rate by another 50bp to 1.50% in March, and may continue its easing cycle over the coming months as policy makers employ all of their available tools to stimulate the ailing economy. Discuss the topic and your trade ideas in the EUR/USD Forum.