German Business Confidence Rises to the Highest Level Since 2007, U.K. GDP Exceeds Expectations
• Europe’s Banks Brace for Stress Tests – Wall Street Journal
• U.K. Economy Grows More Expected – Wall Street Journal
• Rising Stress Test Optimism Boosts Markets - Financial Times
• Success for European Bank Stress Tests Hinges on Data, Not Failure Count - Bloomberg
• Stocks, U.S. Futures Advance on Earnings, Growth; Pound, Euro Strengthen - Bloomberg
EUR/USD: Business confidence in Europe’s largest economy rose to the highest level since July 2007. Figures showed that the IFO – business climate jumped to 106.2 from 101.8 in June, while the current assessment reading rose to 106.8 to exceed economists’ forecasts of 101.8. Indeed, the breakdown of the business climate index showed that all sectors improved, with retail trade moving into positive territory for the first time in over a year. The data bodes well for Germany, however, due to the size of the increase, market participants should not rule out figures scaling back in the subsequent months. At the same time, the unwinding of the fiscal stimulus may add downward pressure on business confidence in the coming months as governments battle high budget deficits with austerity measures. Nonetheless, the better than expected confidence reading lead the EUR/USD to push back above the 100-day SMA to an overnight high of 1.2968. Meanwhile, Moody’s Investors Service placed Hungary’s credit rating under review for a possible credit rating downgrade amid uncertainty in the country’s fiscal outlook. This comes on the back of Hungary failing to tap into the EU/IMF bailout plan of 20 billion earlier this week. Indeed, the rating agency has been very active as of late as they recently downgraded Ireland and Portugal. Going forward, investors will keep a close eye on the ECB stress tests results which are due out later on today. If the results are as ghastly as some traders believe, a flight to safety across all asset classes will likely be the outcome. To discuss this and other topics, please visit the EUR/USD forum.
GBPUSD: Economic activity in the U.K. surpassed economists’ expectations in the second quarter on the back of manufacturing, services, and construction. GDP advanced 1.1 percent during the three months through June, while annualized growth expanded 1.6 percent. It is worth noting that during the Bank of England minutes, the MPC said that the medium term GDP outlook may have weakened. Looking ahead, the Bank of England may maintain its wait and see approach as the global economy continues to face major headwinds in its recovery on the back of austerity measures which will lower growth. Job cuts in the public sector may cause knee jerked movements in the labor market, while the increase in the value added tax from 17.5 percent to 20.0 percent at the start of 2011 will place upward pressure on inflation. To discuss this and other topics, please visit the GBP/USD forum.
Related Articles: Markets Await ECB Stress Tests Results
Written by Michael Wright, Currency Analyst
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