Sterling rose against the euro and dollar as the Confederation of British Industry distributive trades survey came in above expectations, confirming the resilience of the UK consumer.
Sterling
The Confederation of British Industry distributive trades survey figures showed the fastest pace of growth since December 2007. The survey surpassed market forecasts of +5 and rose to +8 in October from the +3 reading in September. Even more unexpected was that, looking ahead to November, retailers expect a balance of +19. Most plan to place their highest volume of order with suppliers since November 2007 contributing to their most optimistic outlook since July 2007, around the start of the credit crunch.
US dollar
The dollar peaked at a two-week high against the euro on Tuesday and recouped some of its early losses against the British pound as the Conference Board’s US consumer confidence index fell to 41.7 in October. The index was down from the 53.4 in September, its weakest level since July and well below forecasts for a reading of 53.1. Nevertheless US Treasury Secretary, Timothy Geithner, yesterday claimed that the financial sector and credit markets have improved dramatically but the overall picture is still “mixed”, at a conference sponsored by the Securities Industry and Financial Markets Association. He also added that today’s US durable goods data will be the “next critical test of the economy’s health” and could well determine if the pullback in risk assets could be sustained for the rest of the week.
Euro
The euro faltered against the dollar and the pound, as the European Central Bank figures showed loans to the private sector contracted 0.3 per cent year-on-year last month, as the economic slump curtailed demand for credit and made banks more reluctant to lend. Data released yesterday showed that M3 money-supply growth, which the ECB uses as a gauge of future inflation, slowed to 1.8 per cent in September, the lowest rate since records began in 1981, from 2.6 per cent in August.
Japanese yen
The yen gained across the board this morning as investors trimmed stretched risk positions in higher-yielding currencies with stocks falling following weaker than expected US data. This comes as the Bank of Japan appears to be leaning towards scrapping some corporate finance support programmes that expire in December, but it may put off a decision again this week in the face of government pressure. The central bank is also expected to forecast three years of deflation in its twice-yearly economic outlook report, a sign it will keep interest rates near zero at least until 2011.