Bernanke unimpressed by US
The upturn we have seen in the US economy has peppered the
financial headlines over the past few months. The US grew at an annualized pace
of 3.0% in the further quarter of 2011, a figure which could well be revised
upwards on Thursday. When the first quarter 2012 GDP figure emerges, this pace
of growth is likely to have increased.
Nonetheless, US Federal Reserve Chairman Ben Bernanke
remains distinctly cautious in his analysis of the US recovery. In a speech on
Monday, Bernanke acknowledged that US data has been positive but refused to
describe it as impressive. The US economy enjoyed similarly positive starts to
2010 and 2011 and failed to kick on, which may explain the Fed Chairman’s more
guarded approach. The market seems to need little encouragement to jump on
dovish rhetoric from the Fed and speculation as to QE3 has been reignited this
week as a result.
There have been some increasingly hawkish comments from some
US Federal Reserve Policymakers but Bernanke’s ever-dovish remarks have kept
the greenback very much hemmed in. He will certainly take more convincing
before QE3 is truly taken off the table. We believe the Fed is very much in
wait and see mode and prepared to pull the trigger on QE3 should conditions
worsen significantly, whilst we do not view the central bank to be close to
doing so at present.
Today’s session brings a key US consumer confidence figure
and the aforementioned revised US GDP figure will be announced on Thursday. If
the dollar is to bounce back in the near-term, these figures really need to be
The dollar’s recent poor performance does little to change
our position that 2012 will be a strong year for the greenback, as the US economic
divergence with the slowdown being seen across other major global economies
Two MPC members vote for
further QE and retail sector disappoints
week’s MPC minutes revealed that two members voted for a further increase to
the Bank of England’s quantitative easing programme. The increased possibility
of further QE in the UK is never going to be positive for sterling but, as it
has done in the last few months, it weathered the headline very well.
MPC doves, Miles and Posen, may have felt vindicated by last week’s poor UK
retail sales, which undershot expectations to show a 0.8% monthly contraction.
Nonetheless, the retail number was expected to be pretty soft after such a
strong start to the year and again sterling recovered from knee-jerk losses.
eurozone growth data was very disappointing last week. Manufacturing and
services figures for Germany, France and the eurozone as a whole all undershot
expectations. This only firms our bet that the eurozone has entered what is
likely to be a deep and painful recession.
of week forecast
|GBP / EUR||1.20|
|GBP / USD||1.59|
|EUR / USD||1.3250|
|GBP / AUD||1.5250|
Sterling is trading just below the psychological $1.60 level
today, having recently found resistance at this key level. Whilst there is now
a significant risk this level will be breached, we are still betting sterling
will stall. Against the euro, sterling is well-supported in the €1.1950-€1.20
area, though it may require some strong UK growth figures at the beginning of
next month for sterling to push much higher.
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