Markets were fairly flat in yesterday’s trading. Sterling, in particular, saw little movement against EUR, though continued to weaken against the US dollar, as foreign exchange investors showed concern over the possibility of further Quantitative Easing (QE) by the Bank of England – expected to be to the tune of $75Bn. PMI services figures released in the UK yesterday also added to the call for another round of QE as the number came in at 51.3 for June, lower than the expected 52.8. These figures point to a dip of 0.1% for the UK’s GDP, which also aided in weakening Sterling slightly, overall adding to the current recession and furthering the call for more QE. However, house price figures this morning, as released by banking group Halifax, were slightly better than expected. All eyes will be, though, on the BoE interest rate announcement this afternoon which are expected to be kept on hold at 0.5%.
On the European mainland, the Eurobond issue continues to be a point of contention with ECB member Knott stating that Eurobonds would ultimately be required, and German Chancellor, Angela Merkel, still rejecting the idea. With the Germans reluctant to support the call, many see this as being a major stumbling block to resolving the crises. In Germany, though, poor economic data contributed to a weakening of EUR, with PMI services figures coming in at 49.9 for the Germans as well, representing a contraction. Not good news considering Germany is the so-called powerhouse of Europe.
Retail sale figures for Europe were up, however, in May by 0.6% (month on month), but this didn’t do anything to boost EUR as year on year figures are still depressed. The focus on the Eurozone today will centre on the ECB’s rate decision, with a cut from 1% to 0.75% expected. This may, unfortunately, be too little too late as some analysts expect.
In the United States yesterday, we saw little economic data because of the Independence Day holiday. USD did see a strengthening though because of on-going concerns in Europe – particularly in Greece, Cyprus and Spain. ADP employment figures and ISM non-manufacturing figures are also expected today which will give further indications as to the health of the US economy.