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August 2016

Sterling still edging higher

Published: Wednesday 24 August 2016

  • Sterling still edging higher
  • NZ trade deficit widens
  • A year of contraction for Australian construction

We heard overnight that Australian construction output shrank for the fourth straight quarter in Q2 2016. A year of declines is not good news for the Reserve Bank of Australia as they mull further interest rate cuts but suggest this is not their preferred option. The Aussie Dollar is a little weaker this morning against a recovered GBP.
We also heard that New Zealand’s trade deficit widened to NZ$433 million in July. That was a larger shortfall than any forecasters had predicted and was accompanied by a downgrading of the June figure as well. As you might suspect, the Kiwi Dollar weakened on the news, which is, ironically, exactly what the NZ economy needs to redress the balance somewhat.
Today’s release of the final German GDP data confirmed the second estimate of 0.4% growth in the 3 months to June; down from the previous quarter’s 0.7%. That is no surprise; in fact, it is a surprise it hasn’t fallen further but the Euro is largely unaffected by the data. As this is pretty well the only EU data today, the Euro is likely to meander; shifted by the news from the UK and US.  
There is much talk that the Bank of England’s bond buying binge (love a bit of alliteration) is overkill and may even damage the UK’s recovery prospects by scaring investors. However, the recent data would seem to undermine that view. Today’s release of lending data from the British Bankers Association is expected to reflect a slowdown in borrowing but no absolute collapse. That would be in keeping with recent retail and consumer activity data. Sterling has had a series of positive days; climbing a cent and a half against the USD and Euro and making similar ground against other currencies.
This afternoon’s US existing home sales data could well strengthen the US Dollar. The new homes sales data released yesterday was quite upbeat and that has set the scene for analysts to up their forecasts for this set. Of course, if the data disappoints, there will be some USD selling going on, so all eyes on the release at 14:00 GMT. Having said that, traders are more interested in what Fed Chair Yellen has to say when she speaks on Friday and that will dominate trading decisions for now.
And seeing French police order a woman to take off her burkini makes a mockery of the law. Someone on the same beach wearing a wetsuit would be as covered as the unfortunate woman but would be left to get on and swim in their full length garb. What utter tosh this is. The gendarmes addressing the woman were on that same beach wearing even more clothing than her.  Irony is beautiful when played out so publicly.


Upon returning to England from a tour of Afghanistan, three soldiers are summoned to the General’s office. They march in and are asked to stand easy and are addressed by the General.
"As these were covert operations men, I can't give out any medals. We did, however, want to let each of you know your efforts were appreciated. However, I have a little discretion on these matter you see; so, what we've decided to do is to let each of you choose two points on your body. You will be given twenty pounds sterling for each inch of distance between those parts. We'll start on the left. Jameson, so what'll it be?"

Jameson says, "The tip of me head to me toes sah!" The General says, "Very good son.” His orderly gets out a tape measure and checks the distance. “That's 70 inches, says the General, “which comes to 1,400 pounds. Spend it wisely soldier. "

Cook was next. “The tip of the finger on one outstretched hand to the tip of the other, sir!"

General: "Good choice son, that's 72 inches which comes to 1,440 pounds. I know you Cook. You won’t spend it wisely at all will you."  Cook smiles wryly.

Jackson is next. "Sir, I will choose, the distance between my right elbow and the little finger on my right hand.”

General: "That's a strange request son but, as you wish.”

As the orderly begins the measurement, he stops and looks at the General in bewilderment.  “Jackson, where is your little finger?" says the General.

Jackson smiles and says, "Lashkar Gah, Helmand Province Sah!"

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
GBP 09:30 UK: BBA mortgage approvals 40.1k 38.5k
USD 14:00 US: HPI m/m 0.2% 0.3%
USD 15:00 US: Existing home sales 5.57m 5.52m
USD 15:30 US: Crude oil inventories -2.5m -0.5m

FX Research by David Johnson

Daily Currency Analysis with Zeta Webber

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