Doldrums, Debt and (Gross) Domestic Product

It was evident that markets are still very much in the summer doldrums period yesterday with trading volume low and all the majors, EURUSD apart, continuing to trade within recent ranges.

With equity markets flat and with US GDP due today (13.30 BST) traders have been exercising caution in the past couple of sessions. The yen is the preferred currency for those seeking some safe haven flows. This mantle has been stolen from the dollar which now is traded more as a proxy for the US economy as opposed to that of the rest of world as well. Dollar falls are mostly down to bad dollar data now to put it simply.

UK mortgage approvals were announced slightly short of consensus yesterday causing some early pound weakness. While the figure was still nearly double the amount of approvals that we saw in the real depth of the credit crunch in late 2008, it was still very poor. The housing market in the UK, so long a driver of wealth creation and the fuel of middle England dinner party chat, will not recover until the jobs market improves dramatically; a prospect that I do not expect until 2012.

The euro has come in for some weakness overnight as sources quoted an unnamed Moody’s analyst over a possible downgrade to the Spanish sovereign credit rating. The rough oeuvre of the comment was that while the Spanish rating may fall it will not fall as much as Greece’s has over the past year. Spanish unemployment has also risen to 20.09% in the past month.

Sterling should have also come in for some weakness over the course of the Asian session as consumer confidence fell for the 5th consecutive month as the UK general public became more and more downbeat over the state of the UK economy and its future performance. Respondents were also more concerned about their own, personal finances.

That US GDP figure is the key hurdle for assets today. The expectation is of 2.6% growth in Q2, slightly lower than the previous release of 2.7%. While we expect that consumer spending in the US has slumped we expect that the shortfall has been made up by government spending and investment.

Have a great weekend.

Rates are dependent on amount transacted.