The Pound to US Dollar exchange rate (GBP/USD) slid lower by around -0.3 cents to 1.5415 last night as markets reacted to a surprisingly optimistic set of US data.
US Durable Goods, US Consumer Confidence, US New Home Sales and the US S&P/Case-Shiller House Price Index all posted encouragingly high scores yesterday, which was seen to give the Federal Reserve’s tapering bias slightly more credibility.
Last week the Fed announced that it was happy with the current pace of economic growth in America and stated that it is prepared to begin tapering asset purchases later this year as long as the domestic economy continues on its current path. Markets plummeted in reaction to the announcement as traders feared that the cheap credit that has kept the global economy running over the past few years could be about to dry up.
Due to recent volatility in the US labour market, soft Consumer Price inflation growth and weaknesses in the US Manufacturing Sector – the latest US ISM Manufacturing report printed at a 4-year low of 49.0 – a large camp within financial markets felt that the Fed was foolish to begin tapering at this moment in time.
However, the awesome foursome of US economic data yesterday reflected remarkably well on the world’s largest economy and appeared to support the Fed’s decision to offer forward guidance on monetary policy. After all what comes up must come down and the sooner that the current QE3-inflated bubble bursts, the sooner markets can return to natural levels.
With US Durable Goods Orders expanding by 3.6% in May as demand for cars and trucks picked-up fairly strongly it is likely that US growth could continue to accelerate throughout the year. Milan Mulraine of TD Securities said:
“This is the missing piece for an upswing in economic activity. Business capital investment activity is off to a strong showing. If businesses start investing they’ll add to their workforce”.
The good news continued as the US Consumer Confidence survey printed at a 5-year high of 81.4 in June. Massively higher than May’s 74.3, the latest gauge of consumer sentiment reflects exceedingly well on the American economy’s prospects going forward, as consumer spending accounts for around 70% of US Gross Domestic Product.
Business investment: check…Consumer Confidence: check…housing market: double check.
The US housing market was treated to a double burst of positive ecostats yesterday as New Home Sales advanced to a stronger-than-anticipated 2.1% and the S&P/Case-Shiller Home Price Index jumped to 12.1% – its highest level since March 2006. When you consider that April’s 2.5% increase was the largest ever monthly surge in house prices it becomes slightly easier to digest the Federal Reserve’s optimistic evaluations of the US economy.
With Fed taper bets growing stronger by the day, it is easy to see why the Pound to US Dollar exchange rate (GBP/USD) is struggling to breach the 1.5500 level.
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