It is the last trading day of the month and the last trading day of the quarter, which means fixing flows will impact how currencies move today. Over the past quarter and in particular over the last month, U.S. stocks climbed to its highest level in 4 years and so portfolio managers will need to sell the U.S. dollar at the fix to rebalance their positions. Currencies are treading water this morning as investors wait for more news out of Spain. Investors responded positively to Spain’s budget yesterday but the optimism is fading with Spanish stocks down 1.6% this morning and Spanish 10 year bond yields up 10bp.

We have a busy U.S. economic calendar filled with secondary data for the month of August and for the Federal Reserve, these unimpressive reports reinforce their decision to increase monetary stimulus earlier this month. Personal incomes grew 0.1%, matching the downwardly revised pace of growth seen in July. While personal spending increased at a faster pace of 0.5%, it raised concerns about whether Americans are spending above their means, again. The PCE deflator shows that inflationary pressures ticked up slightly (0.4%) but remains muted overall, particularly core prices, which increased only 0.1% last month.

We also learned this morning that Canadian GDP grew by 0.2% in the month of July. While this was stronger than expected, the 0.1% downward revision the previous month offset the increase, making it more of a wash. On an annualized basis, growth slowed to 1.9% from 2.2%.

Meanwhile we can’t lose sight of the fact that the focus should be on Spain. Having completed their review of the country’s sovereign debt rating, Moody’s should make its decision about downgrading Spain very soon. Later today, we look forward to the details on the bank stress tests. Total capital shortfall for the banking sector is expected to be EUR60 billion and we don’t expect much deviance since these tests are designed to shore up investor confidence. With Spanish Bank deposits dropping to its lowest level in more than 5 years, the government needs to convince savers that their national banks are still safe. Moody’s on the other hand has no loyalties but after the government’s more ambitious budget, the chance that they will downgrade Spain to junk has decreased..

The Chicago PMI report and University of Michigan Consumer Sentiment index are due for release later today as well but we don’t anticipate any major reaction in the U.S. dollar.

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