Categorized | Forex Trading News

USD Confidence Falls: UK Hits Highs

Related Products:

US equity and currency markets turned lower overnight in the face of political bickering about whether the US government should pay its bills. All three major equity markets turned down at the open on Friday and were poised to give back Thursday’s gains by 10:00 a.m. The dollar also gave ground against a number of currencies despite weakening banking news in Europe and uneasiness in Japan.

In the US, Senators Ted Cruz and Mike Lee continued their stall tactics, defying Republican leadership, and slowed the vote on the debt ceiling-Obamacare defunding bill forwarded by the House. This, in turn, will slow appropriate revisions to be returned to the House that would keep the government open. The delay tactic increased the likelihood of a government shutdown and put the debt ceiling, which will expire on October 17th, into crisis mode.

Investors are not amused. After good employment news on Thursday, The Consumer Confidence Index missed expectations on Friday coming in at 77.5, the lowest level since April 2013. Meanwhile, consumer confidence in the UK was at its highest level since 2007 and even uneasiness in the European banking sector kept consumer confidence in the euro zone higher than in the US.

In early morning trading, the Dow was off 95.05. The S&P 50  was down 9.86 and Nasdaq was 16.33 points lower.

Discord Over European Bank Stress Tests

The euro zone intends to submit its banks to controversial stress tests as a first step in solidifying the region’s banking sector. Capital infusions enabled US banks to reboot their capital reserves but in Europe there is no backstop to ensure that banks are adequately capitalized. This has caused a general tightening of credit markets in the euro zone’s more tenuous economies.

Credit markets in Greece, Italy, Portugal and Spain are frozen. As a result there is virtually no growth in these countries and unemployment remains at record highs.

The stress tests are regarded as important to stabilize international markets and currencies. However, after the stress tests are performed, there is no plan in place to remedy shortfalls. Many banks in the region have insufficient reserves. The net effect of the stress tests will be to highlight weaknesses in the banking sector with no plan to remedy the reserve shortfalls.

The tests administered by the ECB, the European Banking Authority (EBA) and the EU will reportedly be stringent. The ECB will be focused on the euro zone’s biggest banks. The model will be used by the EBA to test the remaining banks in the euro zone through a program known as the Asset Quality Review.

Europe’s top 42 banks are 70 billion euros below new international capital norms. However, analysts suspect that the problems are much bigger ion the euro zone’s smaller banks.

Euro zone purse strings are controlled by Germany who is opposed to the construction on a region-wide re-capitalization plan. Without such a plan, the stress tests will put pressure on governments in the area to boost the banks.

The prognosis is that the absence of testing gives the banks a grace period but the day of reckoning is on the horizon.

Currencies

The USD was down 0.1 percent against a basket of currencies. After gaining 0.3 percent on Thursday.

The biggest move of the day came from the UK where British sterling was up 0.4 percent at $1.6096. The UK recovery appears to be gaining momentum.

The dollar did not fare well against the euro ($1.3558) or the yen 98.280.

Yield on the 10-year Treasury continued its trend toward 2.5 percent and was at 2.62 percent early Friday.

Forex Trading Articles by Forex Blog & Online Forex Trading
Be Sociable, Share!
Related Products:

Comments are closed.