Here is an update of what’s been happening in the Currency Markets throughout October with the USD.
Despite recent economic optimism reasons for concern over the health of the US economy remain; as US factory orders disappointed (falling by 0.8%), non farm (not including the Farming Industry) payrolls losses (-263k) significantly eclipsed consensus expectations and unemployment rose 9.8%. However, the ISM (Institute for Supply Management) manufacturing report showed that economic activity in manufacturing (52.6) increased for the second consecutive month and the economy as a whole delivered its fifth consecutive month of growth. Personal spending (1.3%) rose the most it has in eight years advancing on stimulus provided by the governments “cash for clunkers” scheme.
The ISM Non-manufacturing PMI (50.9) showed expansion for the first time in 12 months and gave further evidence that the US economy is gradually recovering. Nonmanufacturing (service industries) is extremely significant as it contributes almost 90% to GDP (Gross Domestic Product) and indicates that the emerging recovery is spreading from housing and factories to the broader economy. Forward looking sub-indices of the survey were also positive as new orders rose to the highest level since October 2007 and employment rose to 44.3, the highest since August 2008 and signalled that the pace of job cutting was decelerating. Other data showed that Consumer Credit (-12.0b) continues to fall as households reduced debt for the 7th straight month and Wholesale Inventories (-1.3% m/m) dropped for the 12th consecutive month, clearing the way for a pick-up in orders as and when sales start to improve.
Key headline Retail Sales (-1.5% m/m) reflected a sharp pullback in car sales (-10.4% m/m) as the government sponsored ‘cash for clunkers’ programme expired. Core retail sales (ex-autos, +0.5% m/m) were more encouraging, recording a second month of growth and raising optimism that the worst of the recession was over. Firms are showing less faith in the recovery story as already depleted Business Inventories (-1.5% m/m) fell at a record pace and recorded the 12 straight monthly decline. Manufacturing continues to show patchy improvement with the New York Fed Index jumping to 34.6 from 18.9 but the Philly Fed Index falling back to 11.5 from 14.1. Friday saw preliminary University of Michigan Consumer Sentiment (69.4 from 73.5) disappoint market watchers as households continue to rebuild personal balance sheets and repay debt in an economic environment that is far from certain.
Advanced GDP (Gross Domestic Product) for Q3 (+3.5% annualised) saw the US break out of the worst recession for 70 years as government stimulus helped lift consumer spending and home building. The unexpectedly strong number was the fastest pace of growth since Q3 2007 and broke four quarters of declining activity. However doubts do remain about sustainability once huge government stimulus packages are eventually reined back in, with estimates suggesting that GDP growth of 1-2% is a more realistic expectation. Headline Chicago Purchasing Managers Index (54.2) jumped into expansion territory and recorded its highest level since September 2008. The detail was a little mixed with the employment component (38.3 from 38.8) falling but new orders (61.4 from 46.3) surging as record low inventory levels start to drive restocking. Despite the strong GDP data earlier in the week all three major equity indices finished the month with sharp sell-offs on Friday, as waning consumer sentiment and concerns about the health of financial institutions, particularly Citigroup, weighed on investor confidence.
This week the Federal Reserve’s monthly policy statement will be perused for signals about when liquidity measures might be withdrawn and key Non-farm Payrolls may give an early indication of the strength of the recovery in Q4.
Current Central Bank Rates:
US: 0.25% - Federal Reserve Bank (next meeting 4th November)
UK: 0.50% - Bank of England (next meeting 5th November)
GBP/USD Highs & Lows of October:
A movement of: 6.28%
Difference this would make on £200k
A difference of $19,740
Whilst FX isn't the most thrilling of subjects, the sooner you begin to think about your money transfers, the more likely you are to make your money go further.