Forex News | Currency News by Forexlive

• US Q2 GDP rises 2.4%, close to expectations; Q1 GDP revised sharply higher,  3.7% from 2.7%
• NY ISM falls to 58.4 in July from 69.3 in June, lowest in 11 months
• Canadian GDP rises 0.1% in May from 0.0 in April
• Chicago PMI firmer than expected at 62.3 in July from 59.1 from June
• University of Michigan consumer sentiment index 67.8 in final July reading up from preliminary 66.5; June final was 76.0
• White House: Headwinds from Europe slowed US growth in Q2
• S&P 500
• US 10-yr note yield slides to 2.90% on month-end demand for Treasuries; 2-yr at record 0.55%

EUR/USD recovered losses seen in late European morning trade, bouncing from near 1.2980 to as high as 1.3070 on squaring from intraday shorts just prior to the London close. Demand for EUR was modest at the month-end fixing relative to the flows seen in some of the other pairings.

GBP/USD was in a great deal of demand at the close of the month. Prices raced higher from 1.5580 US lows to 1.5720 highs as London closed up shop. Fixing demand got lit the fuse and short-covering into the close caused the explosion. The 1.5690-ish close is the highest since February.

AUD was in demand today though the numbers were scaled back from yesterday’s outlandish predictions. We equaled the trend high at 0.9067 today and close at 0.9045. Fixing demand was the key for today”s higher prices. A recovery in US equities from 1% losses to close especially flat helped the cause.

USD/JPY was quite volatile today, falling as low as 0.8595 in the wake of the mixed US GDP data. Prices rallied sharply after the upbeat Chicago PMI figures caught the market short and US equity markets stabilized. Low US bond yields limited rallies to 86.73 right bear the fixing. We end at 86.35.

For you Commitments of Traders fans, here is the link to the latest data.

By Denny Gulino

WASHINGTON (MNI) – Nomura Friday became the first major firm to
formally anticipate a change in Fed policy as soon as August 10 to alter
course toward some renewed quantitative easing, arguing that without the
change, Fed policy is becoming less accommodative week by week.

“We think there will be something in the (FOMC) language that maybe
reverts back to the language of 2009, around the first time they made
this statement, that the Federal Reserve needs to maintain an expanded
balance sheet,” David Resler, chief North American economist for
Normura, told Market News International.

“That begs the question, what does that mean to expand,” he
continued. “We don’t think they will actively buy things,” he said, but
that they will have to “back up their language.”

While the Fed now is committed “only to rolling over guvvies,” he
said, “they are becoming less accommodative each week. Mortgages are not
being replaced” and other shrinkage is taking place.

“They need to have a strategy for preserving (the balance sheet’s)
size. Does that mean they will reinvest paydowns. I don’t know, and
we’re agnostic on how they will do it.”

Just lowering rates “is not on the table any more,” he said, and
changing the rate of interest on excess reserves “is the last option
they would resort to.” At present “they are losing assets, so I think
they would not want to lose them.”

Getting into the practical implementation issue, “do they offset
dollar for dollar every prepay they at the time they get it?” Resler
asked. “They may not be able to do that.”

In any event, the change in language, while having its own effect,
won’t be enough. There will have to be activity, he said.

Resler and colleague George Goncalves have dubbed whatever is to be
done “QE light,” with a risk of other actions, such as cutting the rate
on excess reserves.

Overall, the Fed must do something because of the deterioration in
the data since March and the downward revision in the Federal Open
Market Committee’s outlook, Resler said. Nomura does not see another
recession, but a sufficient case based on economic performance for some
manner of easing.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$$CR$,M$U$$$,MMUFE$,MGU$$$,MFU$$$]

Those lingering late this summer, month-end Friday afternoon in hope of some final pearl of wisdom, linger not. Your host with the most is official bereft of insight.  I’ll be here, grudgingly, in case of some sort of unforeseen event, but barring that they’ll just be a wrap-up at the top of the hour.

I thought she was supported to win in a walk? Thanks to Chris for the link to the article in the Sydney Morning Herald..

Perhaps political uncertainty will spark a bit of profit-taking in the otherwise wekk-bids AUD/USD.

EUR/GBP is bouncing a bit after holding the 50% Fibo of its 0.8070/0.8525 rally which comes in at 0.8299. We’ve been as low as 0.8305 so far today. Expect a few stops to be placed below that Fibo. Things could get a bit hairy if they are tripped in thin summer Friday month-end dealings.

–White House’s Mid-Session Review Projects Large Deficits For Decade
–OMB’s Orszag: Must Cut Deficit, But ‘Foolish’ To Make Big Cuts Now
–CBO Report: U.S. Debt Could Grow To ‘Unsupportable Levels’
–CBO: Large Debt Would ‘Restrict’ Range of Policy Options For Economy

By John Shaw

WASHINGTON (MNI) – As lawmakers wind down their summer legislative
session, two recent fiscal reports show a dark fiscal landscape that
will require policymakers to respond.

The reports do not make for soothing beach reading.

Last Friday, White House budget director Peter Orszag released the
administration’s mid-session review. The report showed budget deficits
of $1.471 trillion in fiscal year 2010, $1.416 trillion in FY’11 and
$911 billion in FY’12.

The administration now projects deficits of $736 billion in FY’13,
$698 billion in FY’14, $762 billion in FY’15, $758 billion in FY’16,
$721 billion in FY’17, $749 billion in FY’18, $822 billion in FY’19 and
$900 trillion in FY’20.

Speaking this week at the Brookings Institution, Orszag said
serious deficit reduction steps are needed in the U.S., but added that
it would be “foolish to dramatically reduce the deficit immediately.”

Orszag urged policymakers to avoid the “false debate between jobs
and the deficit.” He said that sound economic policies require
short-term stimulus and longer-term deficit reduction.

“We need both and it’s all a question of timing,” Orszag said.

“Over the medium and long term, we’re on an unsustainable fiscal
path,” Orszag said.

The departing White House budget chief said that passage of
comprehensive health care reform this year has done a great deal to
tackle long-term deficits, but added “more needs to be done.”

Orszag said the work of the deficit reduction commission chaired by
former White House chief of staff Erskine Bowles and former senator Alan
Simpson will be a “critical kick start” to the fiscal debate next year.

The panel’s finding should help policymakers “get ahead of the
problem,” he said.

Orszag said that the U.S. is in “no immediate danger” of a loss of
global confidence in its ability to manage its fiscal affairs.

Orszag is stepping down Friday as White House budget director.

The day before Orszag’s remarks, the Congressional Budget Office
issued a paper, “The Federal Debt and Risk of a Fiscal Crisis,” that
focused on the gravity of the nation’s fiscal predicament.

The CBO paper said the recent surge in the federal debt is due to
the convergence of three factors: an imbalance in spending and revenues
that predates the recent recession and financial crisis; the sharp
reduction in revenues and surge in spending that “derive directly” from
the recession; and the cost of policy responses that were designed to
get the nation out of the recession.

The CBO said that the aging of the population and the rising costs
of health care will keep upward pressure on deficits unless policy
changes are made.

“Unless policymakers restrain the growth in spending, increase
revenues significantly as a share of GDP, or adopt some combination of
those two approaches, growing budget deficits will cause debt to rise to
unsupportable levels,” the report said.

The CBO report said rising debt levels would “increasingly restrict
the ability of policymakers to respond to unexpected challenges, such as
economic downturns or international crises.”

The CBO study warned that a rising level of public debt “would also
increase the probability of a sudden fiscal crisis” in which investors
could lose confidence in the government’s ability to manage its budget
and the government would thus lose its ability to borrow at affordable
interest rates.

The CBO report noted that any loss of investor confidence could
come gradually, but it could also occur, as recent international
examples show, “abruptly and interest rates on government debt would
rise sharply.”

If a fiscal crisis occurs in the U.S., “policy options for
responding to it would be limited and unattractive,” the CBO concludes.
The government would need to undertake some combination of restructuring
its debt, pursuing inflationary monetary policy, and implementing an
austerity program with spending cuts and tax increases.

** Market News International Washington Bureau: (202) 371-2121 **

[TOPICS: M$U$$$,MFU$$$,MCU$$$,M$$CR$,MGU$$$]

–Adds Details to Story Sent at 16:03 GMT

FRANKFURT (MNI) – The recovery of the Spanish economy will be weak
and fragile and growth is not foreseen until 2011, the IMF staff said
Friday in its annual article IV review on the country.

The challenges the country faces will likely retard recovery and
make it “more fragile” than in the Eurozone as a whole, the staff added.

“The central scenario is one of a long and gradual adjustment of
the various imbalances in the economy,” the staff wrote in their report,
dated at the end of June.

The staff foresee real GDP declining this year by 0.4%, after a
3.6% drop last year. Real growth should return in 2011, but only by a
meager 0.6%, the staff argued. In 2012 and 2013, growth is expected to
be 1.7% and 1.9% respectively.

Price pressures are also expected to remain subdued; the staff sees
inflation at below 1.5% through 2013.

The country’s public deficit, a serious problem, is expected to be
9.3% this year, 7.0% next year, 6.6% in 2012 and 5.9% in 2013. The
projections are more pessimistic than those of the Spanish government,
which aim to hit 3.0%, the maximum deficit allowed under EU rules, by
2013

“Ambitious fiscal consolidation is underway,” the staff said, but
the plan “is based on potentially optimistic macroeconomic projections
and the achievement of the targets should be made more credible.”

Government debt is expected at 63.7% this year and will rise to
79.8% by 2013 and then 85% by 2015, the staff said. The government sees,
however, debt only hitting 70.5% by 2013.

Spain’s outlook is “particularly uncertain,” the staff cautioned.
On the upside, “household consumption could grow more rapidly,
reflecting rising confidence, and stronger growth in partner countries
and the weaker euro may induce faster export growth,” the staff
explained.

Downside risks include a stagnation of the domestic economy, as
well as the failure to implement necessary fiscal policy reforms or an
external shock “such as an intensification in the recent market stress
for peripheral euro area countries,” the staff said.

“If distress were to spread to Spain, given its systemic
importance, the impact on the rest of Europe, and indeed globally, could
be substantial,” the report cautioned.

“Notably, the average conditional probabilities of distress in
European sovereign debt markets, given distress in Spanish government
debt, are higher than those under Greek distress,” it added.

Spain’s precarious situation and the risk that its wobbling poses
to other Eurozone countries make it necessary that the country “get
ahead of markets” with a “pro-active, comprehensive, and credible
strategy” on deficit-cutting and structural reform.

“A bold pension reform, along the lines originally proposed by the
government, should be quickly adopted,” the staff urged.

The new labor market reform does have “many positive aspects”,
but there remains “scope for further strengthening,” the staff argued.

“The process of consolidating savings banks has accelerated as
staff had recommended,” the report said.

The staff also eyed the minority status of the current ruling
Socialist government as a possible challenge, reminding that the
government’s austerity package was only approved by one vote in May.

–Frankfurt bureau; +49-69-720142; frankfurt@marketnews.com

[TOPICS: M$S$$$,M$X$$$,MFX$$$,M$$CR$,MGX$$$,MT$$$$]

FRANKFURT (MNI) – The recovery of the Spanish economy will be weak
and fragile and growth is not foreseen until 2011, the IMF staff
reported Friday in its annual article IV review on the country.

The challenges the country faces will likely retard recovery and
make it “more fragile” than in the Eurozone as a whole, the staff added.

“The central scenario is one of a long and gradual adjustment of
the various imbalances in the economy,” the staff wrote in their report,
dated at the end of June.

The staff foresee real GDP declining this year by 0.4%, after a
3.6% drop last year. Real growth should return in 2011, but only by a
meager 0.6%, the staff argued. In 2012 and 2013, growth is expected to
be 1.7% and 1.9% respectively.

Spain’s outlook is, however, “particularly uncertain,” the staff
warned. On the upside, “household consumption could grow more rapidly,
reflecting rising confidence, and stronger growth in partner countries
and the weaker euro may induce faster export growth,” the staff
explained.

Downside risks include a stagnation of the domestic economy, as
well as the failure to implement necessary fiscal policy reforms or an
external shock “such as an intensification in the recent market stress
for peripheral euro area countries,” the staff said.

“If distress were to spread to Spain, given its systemic
importance, the impact on the rest of Europe, and indeed globally, could
be substantial,” the report cautioned.

“Notably, the average conditional probabilities of distress in
European sovereign debt markets, given distress in Spanish government
debt, are higher than those under Greek distress,” it added.

The staff also eyed the minority status of the current ruling
Socialist government as a possible challenge, reminding that the
government’s austerity package was only approved by one vote in May.

–Frankfurt bureau; +49-69-720142; frankfurt@marketnews.com

[TOPICS: M$S$$$,M$X$$$,MFX$$$,M$$CR$,MGX$$$,MT$$$$]

• GDP seen falling 0.4% this year, growing 0.6% next year, rising 1.7% in 2012
• Deficit to fall to 7% of GDP next year, 1% above target
• Spain says IMF forecast too pessimistic
• IMF says banking reform needs to be accelerated

Pretty downbeat by IMF statndards as the genrerally try not to trod on too many toes…

EUR/USD is firm , however, at 1.3065.

It’s all about position squaring at this point. Most will wait until next week for fresh spec activity.

Looks like Europe is covering some EUR/USD shorts ahead of the weekend, driving prices back toward 1.3055, the spike top after the US GDP data earlier in the day. 1.3060 provided support all day yesterday so some may look to sell on the approach of that level today as it becomes resistance.

Cable is firm into the close as well, extending its gains as high as 1.5702 on the Reuters dealing platform…

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