Barclays Plc Revises Forecast for Euro Against Dollar (Correct)
By Catarina Saraiva – Jul 30, 2010
(Corrects direction of exchange rates.)
Barclays Plc revised its one-month forecast for the euro to $1.27, compared with the previous estimate of $1.20. The greenback advanced 0.3 percent to $1.3039, from $1.3079 yesterday.
The dollar will fare better versus the euro as U.S. economic data begin to improve, Paul Robinson, a currency strategist at Barclays in London, wrote in a note to clients.
Slow and slower
Jul 30th 2010, 13:18 by R.A. | WASHINGTON
MONTHS of disappointing economic figures have now culminated in a disappointing advance estimate for second quarter output growth. Real GDP increased at a 2.4% annual pace in the second quarter—less than forecast and the lowest rate since the third quarter of last year. Real GDP growth for the first quarter was revised back up to 3.7%, a full percentage point higher than had last been estimated. But 2.64 percentage points of that rise was attributable to inventory shifts (a transient factor that tends to power growth early in recoveries). Meanwhile, the annual revision of income and product account data subtracted from previous growth totals for 2007, 2008, and 2009. For the moment, it looks as though growth is leveling off, even as real output has yet to attain its pre-recession level.
Looking more closely at the second quarter data, there is good news and bad news. The contribution of private investment to growth increased, and both residential investment and state and local government spending flipped from drags to contributors to growth. But other signs are less positive. Inventory adjustment provided a full 1.05 percentage points of the 2.4% number. The contribution of personal consumption to growth declined from the first quarter to the second. And imports surged while exports lagged. Renewed weakness in the dollar may improve the drag from net exports in the third quarter, but for now the pressure on Congress to adopt trade protecting measures is sure to increase. Taken all together, underlying growth looks quite weak, and in quarters to come the contribution from both government and inventory shifts will fall, or turn negative. All indicators suggest that second half growth will be no faster than first half growth.
Which means that the economy will struggle to hit even the low range of the Fed’s output forecast. And the price index for core personal consumption expenditures continued to tick downward.
The result is likely to shake up the debate at the August Fed meeting and is very likely to increase the calls for new stimulus measures on Capitol Hill. The faster growth recorded in the two prior quarters failed to generate much of a boost in employment, and legislators, particularly those facing a November election, may fear that labour market recovery will slow even more amid weak economic growth. But there are few easy answers available. Last week, the Senate only barely passed a tiny, $34 billion extension to unemployment benefits. The best hope for American workers—and for vulnerable legislators—may be renewed interest in expansionary policy at the Federal Reserve. the economist