Dubai: The global recovery trade took a serious stumble last week as a spate of disappointing US data suggested the US recovery is in greater jeopardy than previously thought. As the largest national economy, the US setbacks undermine the global outlook, which was already under pressure as China moved to restrict lending and stimulus programmes wind down in other major economies.
Contemporaneous US reports such as consumer confidence, durable goods, new/existing home sales, and jobless claims were all ominous and not at all constructive for the outlook going forward. We forecast modest gains in both the level of January new home and existing home sales, to 350,000 and 5.49 million respectively. The performance of the housing market is likely to remain a major factor in discussions at the Fed on its ‘exit strategy'.
Euro
The euro continued to be hampered by ongoing concerns over Greece and the lack of details from the European Union (EU) about what support Greece may receive should confidence in Greek debt. Sentiment on the European single currency is universally bearish and positioning reflects that. As well, the euro is likely being seen as potentially under speculative assault by the European Central Bank (ECB) and other EU institutions, raising the prospect of verbal/actual intervention.
It is difficult to imagine that Greece has anything up its sleeve that could alleviate market scepticism. Until there is solid progress on budget reform in certain members, the euro could stay under pressure.
Range for previous week: $1.3450-$1.3691 (Dh4.9401-Dh5.0287). Range for this week: $1.3450-$1.3800 (Dh4.9402-Dh5.0687)
Sterling
Sterling broke through key support levels last week, breaking lower out of its recent medium-term range and falling to a nine-month low versus the US dollar. Unexpectedly weak UK labour market data and higher than forecast UK January public borrowing sent the pound below 1.55 to the greenback.
The headline revision to UK gross domestic product (GDP) in the fourth quarter was better than expected at +0.3 per cent quarter-on-quarter but the breakdown showed that this was largely due to government spending which rose 1.2 per cent quarter-on-quarter. Insofar as fiscal stimulus is set to go into reverse this year, the strength of this component underpins the question over whether the recovery can yet sustain itself. Clearly the risk of double dip recession has not yet been fully averted.
Range for previous week: $1.5148-$1.5575 (Dh5.5638-Dh5.7206). Range for this week: $1.5100-$1.5550 (Dh5.5462-Dh5.7115)
Yen
A week full of major event risk should put risk sentiment up for grabs which clouds the outlook for the yen. The past week saw the currency soar as the threat of another rating downgrade for Greece and the dimming outlook for global growth sparked a flight to safety.
Japanese fundamentals are often overlooked in regards to determining price direction for the Yen. However, the Japanese economy is in such a fragile state that it could potential lose its status as a safe haven and therefore must be monitored.
Range for previous week: 91.90 yen-88.72 yen (Dh0.03996-Dh0.04139). Range for this week: 89.50 yen-92.50 yen (Dh0.03971-Dh0.04104).
— HSBC Bank Middle East Limited
