News » Gasoline price controls US consumer’s spending

Gasoline price controls US consumer’s spending

Jun 24 2008, 09:41

In early European trade, the EURUSD rebounded for 50 points rising, firmed up by French data and some bargain hunting at the 1.5500 level. There was a rise in French consumer spending by 2.0% in May after falling by 0.9% in April. Business sentiment bears up well with French Production Outlook Indicator printing at 7 versus 5 expected.

The better that forecast results from EZ 2nd largest economy offer some support for ECB’s view that growth in the region remains steady and as a result the 15 member union can take up yet another rate hike sometime this summer. However, as German GFK Consumer confidence dropped to 3.9 from 4.6, this scenario sounds too good to be true. Only two months ago the GFK survey stood at 5.3 showing that consumer attitudes have worsened severely in a very short period of time. Needless to point out that gasoline prices are to be blamed for the mass pessimism with gasoline in Germany now selling for around $11.30 per gallon – the highest in the industrialized world.

The currency market is focused on yield and carries trade flows go on with supporting the Euro. In overnight trade EURJPY rose to 69.06 from July 2007 and could make a run fro that level if the market becomes convinced that the ECB rate hike will be forthcoming in July.

At the same time, in US the market will get a quick look of the Consumer Confidence reading at 1400 GMT with most analysts expecting a further worsening in the data. The greenback may come under assault if the number misses to downside showing that consumption in US could reduce even more as the summer progresses. It is becoming ever more complicated for US consumers to make ends meet at the end of each month as gasoline costs have dramatically increased to approximately $100/week for those drivers who own SUVs.