23, August 2010

Reports today suggest the forex market analysts are the most pessimistic on the Pound since May 2009, predicting the Chancellor’s cuts will eat into economic growth, the already soft economic recovery is forecast to slow causing Sterling to fall back against both the Dollar and Euro. Median estimates suggest the Pound will drop 8 per cent against the Euro by year end as the recent bullish UK data starts to deteriorate.

The US Dollar rose sharply on Friday against the Euro, Sterling, Aussie and Candian dollar on the back of risk aversion, while safe haven currencies such as CHF and the YEN strengthened against the dollar.

The Fed is perceived by the markets to be in a holding pattern until further directional economic data is released. Weakness in global equities carried through to European markets sending major indices lower while US stocks are lower as the sell off continued. The current lack of Tier 1 economic data out of the US is putting the focus on the equity markets.

The Euro fell against a basket of currencies on Friday and remains on the defensive this morning as comments by a senior ECB official fuelled expectations for liquidity to remain a concern for the single currency. ECB Governing Council member Axel Weber told Bloomberg in an interview published on Friday it would be “wise” to extend unlimited liquidity to banks past the end of 2010.

The Euro was further hit after the US Federal Reserve said the US and global economic recovery was losing steam, striking a nerve with investors. The euro zone is seeing an increasing split not only in banking but in the economy in general. While the euro zone economy improved in the second quarter with Germany setting the tone, southern Europe recorded much more muted growth. Market analysts believe the ECB may have little option but to keep flooding the money market with cash to help banks and governments in the EU.

The Euro zone economy will remain under the spotlight today with the release of the flash August euro zone PMI’s which are expected to fall back from 56.7 in July to 55.5. In the US the focus will be on the release of housing and labour market figures. On Friday of this week the focus will be on the UK with the release of Q2 GDP growth figures.

Report by Alistair Cotton

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Currency Market Updates

BlogCatalog – Finance

30, July 2010

Of late, UK economic data has been extremely positive. However, since yesterday this trend has been broken. Overnight GfK Consumer Confidence fell by more than expected to -22 (consensus -20, previous -19). This follows yesterday’s news that house prices fell by more than expected in July, coming in at -0.5% m/m (consensus -0.3%, previous 0%).

It appears that concerns about the medium-term impact of fiscal austerity measures on personal finances is outweighing any potential optimism about the recent recovery’s momentum, thus keeping demand low. In other data, both mortgage approvals and mortgage lending in June fell more than expected and M4 money supply was unchanged for June.

Despite this negative development, sterling continued its recent surge against the US dollar and managed to close at levels not seen since February of this year. Significantly, sterling is well supported ahead of a key technical level, the 200 day moving average of 1.5543.

The euro has continued to push higher against the US dollar as optimism continues to spread throughout Europe following the release of numerous corporate earnings yesterday, all surpassing market expectation. Additionally, the narrowing of Euro zone sovereign debt spreads over recent days has boosted the single currency.

This positive sentiment was further helped by continued improvement in Germany’s unemployment data. For 13 months, the German unemployment rate has dropped consistently which has taken the level of unemployment back to 7.6%, its lowest level since Nov 2008. Yesterday we also saw German CPI which showed inflation coming out slightly higher than expected with inflation rising to 1.2% Y/Y in July from 0.9% in June.

On Thursday morning the Reserve Bank of New Zealand raised its policy rate 25 bps to 3.00% as widely expected. The central bank however was far more dovish in the accompanying statement than predicted stating future growth prospects had deteriorated considerably.

The US dollar has been on the slide for several weeks now and this negativity in the Greenback could continue further with the release of Q2’s QoQ GDP figure (consensus 2.5%, previous 2.7%) at 13:30 BST. Recent data from the US has been poor with manufacturing and durable goods numbers disappointing the markets.

This afternoon’s GDP figure will be key for the short to medium term trading levels of the dollar and views of it being a safe-haven could begin to fade.

Report by Tim Lewis

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Currency Market Updates

BlogCatalog – Finance

21, July 2010

This week is all about the euro and the approaching stress test results which will offer much needed feedback on the health of European banks. The euro has experienced a significant turn of fortune from its June 4 and half low against the USD gaining over 10 cents to test the 1.30 level.

One reason that the euro has gained is simply that the market was significantly over short in the euro and naturally alot of these short investors paired their positions leading to a short squeeze higher. In addition some comfort has come back into the euro approaching Fridays stress test results as comments in the run up from members of the IMF and the ECB have been bullish – we will see!

Recent gains have led to EUR/USD testing the 1.30 level and GBP/EUR falling back into 1.17 territory. The results are due out from 5pm GMT on Friday. Good feedback should push EUR/USD over 1.30.

Today we have the BoE minutes which should not spring any significant surprises with a 7-1 vote expected- comments from policy members Posen and Sentance will be the highlight and naturally the market will be looking for future objectives from the Monetary Policy Committee. Posen is more dovish and sees UK rates moving lower, whereas Sentance is a hawk and is pushing for a hike to combat the threat of inflation.

Later today in the US we have Fed chairman Ben Bernanke delivering his semi-annual report to Congress. Recently the sentiment and the economic feedback from the US economy has turned bearish with consumer sentiment falling nearly 10 points last week. It will be interesting to see if the tone of Bernanke turns more cautious and dovish- if so we could see this turn into short term selling pressure for the USD.

Earlier today we saw GBP/USD fall off a cliff dropping 120 points at 8:00 am before retracing back up within 5 minutes…a crazy move which has been blamed on a Dutch bank- we seem to be getting more of these huge moves in the forex markets- could well be another case of a “fat finger” mistake triggering this move….

Report by Phil McHugh

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16, July 2010

The dollar hit a two month low against the euro and a basket of major currencies as soft inflation and manufacturing data added to concerns about the strength of the U.S economy. Data released showed a third straight monthly decline in producer prices and came just a day after the Federal Reserve meeting minutes revealed policymakers think they may need to do more to boost the economy if a stuttering recovery slows any further.

Euro/Dollar soared towards 1.30 while Sterling rose to 1.54 as investors removed their money from the safe haven currency. The dollar will remain under pressure if the current run on weak data continues. Today’s CPI and University of Michigan consumer confidence figures could foster some USD strength, though consensus is low.

Worries about the euro-zone’s fiscal crisis have been somewhat allayed by successful debt raisings by Greece, Spain and Portugal. Investors are anticipating that stress tests of European banks on 23rd July will paint a picture of a healthy regional financial industry. It is a slow day on the data front as we head into the weekend with Euro-zone trade data the only item released in Europe.

The British pound extended gains to a fresh 10-week high against the US Dollar , as data mentioned above from the US kept pressure on the dollar. Market reaction was limited as Bank of England policymaker David Miles said it was not appropriate to raise interest rates now.

He also downplayed the risk of inflation staying above target in a sustainable way without a pick-up in wage inflation. This view was, of course, different from BoE’s Sentance’s call for higher rates that he has reiterated several times of late.

Report by Tim Lewis

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09, July 2010

Yesterday, the European Central Bank (ECB) stated they will continue until further notice to supply unlimited funding to EU banks that require it. According to ECB president Jean-Claude Trichet “We have already decided to continue to proceed with the 3-month (refinancing) operation in an unlimited supply of liquidity mode for a number of months, and we did not decide anything more than that.”

The news came following the ECB’s decision to keep rates on hold at 1%. The liquidity remains on offer despite fewer bids than expected during this month’s 3 month refinancing operation where ‘only’ €131bln against a forecast of €200bln bids was required. A positive move for Eurozone and the Euro however Trichet stated it should not be read as any kind of monetary policy signal.

The ECB left its key refinancing rate unchanged at 1.0%, they the deposit rate which is the floor for euro money market rates at 0.25%, and the marginal lending rate which is the ceiling at 1.75%. The positive sentiment has continued the Euro’s rally and is now trading at GBP/EUR: 1.1957 and EUR/USD is approaching 1.27s at 1.2693.

Back to the UK and the IMF has warned that the current austerity plans could harm the overall long terms growth prospects for the economy. Official figures on Thursday indicated the first clear evidence of positive momentum in the economy, but city analysts warned of headwinds from planned tax rises and spending cuts to shrink Britain’s huge budget deficit of £155bn, and the IMF has consequently slashed forecasts for the UK.

The positive news came in the form of manufacturing data as numbers showed the fastest annual growth in more than 15 years, according to the Office for National Statistics, while economic output in the three months to June was the strongest it has been since the recession, the latest monthly estimates from the National Institute of Economic and Social Research (NIESR) showed.

It was a quiet end to the week in Asia, the USD/JPY had the widest range and that was only 33 pips. The positive lead from Wall Street and the decision by the Obama administration not to label China a currency manipulator should have been bullish for risk but as it’s Friday, dealers have been less than willing to get involved.

EUR/USD managed to crack through the 1.2700 late in the NY session, but immediately fell back, the lack of momentum suited Asia and the crosses have also been quiet. Ranges EUR/USD 1.2675/1.2702, EUR/CHF 1.3310/45, EUR/GBP .8370/81.

To end the week we have a Canadian jobs number at midday with 20,000 net improvement expected with the overall unemployment to stay on hold at 8.1%.

Have a great weekend.

Report by Philip Ryan

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05, July 2010

The Euro reached a two month high versus the the US dollar late on Friday as investors remain content for the time being with better than feared results from the European Central Bank’s tender facility. The Euro’s surge continued into Friday afternoon’s session on the back of weaker than expected US Non Farm Payrolls data.

The risk and commodity currencies took a bit of a hammering late on Friday with both the Euro and Sterling making headway going into the Independence Day Holiday affected weekend and have retained the move so far today.

This week is a busy one in terms of key central bank meetings. First up is the Reserve Bank of Australia announcing its latest policy decision on Tuesday with the market consensus expecting no change to the base rate.

The minutes from the June meeting clearly indicate that the RBA has adopted a wait-and-see posture as the Board awaits “information on how the recent market uncertainty might affect the global economy”. The next quarterly CPI estimates not due for release until July 28th, was also cited as a critical input to future rate decisions.

Next up on Thursday is the Bank of England’s turn. After several months of uneventful policy decisions by the BoE, Thursday’s announcement will be the most eagerly awaited for quite some time. Whilst no change in the bank rate is expected, it’s the first meeting since the emergency budget on June 22nd.

The minutes, due for release on July 21st will be scrutinised for any sign that fiscal consolidation could deter early rate hikes. Furthermore, signs of division on the committee have also recently emerged, culminating in MPC Member Andrew Sentence’s decision to vote for a rate hike at the June.

Meanwhile fellow member Adam Posen has indicated he is in “no rush” for a rate increase because there is no immediate panic over rising inflation.

Finally, Thursday lunchtime sees the European Central Bank step up to the plate with President Trichet’s post-policy decision press conference being the main focus. No change to the refinance rate is forecasted with it remaining at 1.0%. As such, questions will likely focus on bank stress tests and whether recently announced fiscal consolidation plans may influence ECB policy.

Global data is concentrated on the end of the week with the bulk coming from the UK and the Eurozone. For today, expect very quiet trading sessions in most, if not all, markets.

Report by Tim Lewis

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2 July 2010

Just when you thought it was safe to get back into the water after the previous EURUSD short squeeze, we see a 2% move up in the pair and it now trades over 1.25. The combination of the successful Spanish bond auction, speculation of a disappointing US jobs number later today and fears over a US double dip recession all helped the Euro climb against the Dollar.

However, the fall-out from the ECB rollover of €442 bn of bank funding has delivered a relative tightening of monetary policy compared to other countries. The subsequent yield advantage of the Euro has been quickly identified by the market and has driven up the price of the Euro against both the Dollar and the euro. A weaker Euro is needed to drive growth in the Eurozone over the medium term, so the result of the ECB policy of shoring up a trembling Eurozone banking system has been slightly counterproductive.

The announced austerity measures across the Eurozone will need to be offset by foreign demand for growth to continue, something that a stronger currency makes less likely. Whether the ECB sees this as a temporary blip in the downward trajectory of the Euro or we see further Euro strength, it is clear that this issue will be at the front of policy maker minds over the coming months.

Expect light trading this morning in Expect light trading this morning in GBP/USD
as we wait for the Non-Farm Payroll data this afternoon. The consensus forecast is -110K jobs, that is 110,000 jobs lost over the month, which sounds large until we take account of last months increase due to census workers.

The Dollar is coming under pressure as fears mount over the stalling economic recovery in the US so strong employment numbers would be a welcome rest bite from the bearish sentiment that has taken hold. as we wait for the Non-Farm Payroll data this afternoon. The consensus forecast is -110K jobs, that is 110,000 jobs lost over the month, which sounds large until we take account of last months increase due to census workers. The Dollar is coming under pressure as fears mount over the stalling economic recovery in the US so strong employment numbers would be a welcome rest bite from the bearish sentiment that has taken hold.

The battle between those who want to implement European style cut to public spending and those who feel cutting now would derail a already fragile recovery is raging, and it is the outcome of this which will set the theme for the dollar moving forward.

Sterling has taken a back seat over past couple of days, with events in the Eurozone and US determining the exchange rate rather than data from the UK. Slipping under the radar was the news that the ONS delayed the release of GDP data on Wednesday due to errors in the dataset that is used to calculate it.

Quite what this means for Sterling is not clear as yet, the official release date has been put back to 12th July but it is a real embarrassment for the ONS, and given the importance of data releases for the forex markets, any loss of confidence in British data will undermine sterling

Report by Tim Lewis

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21, June 2010

But first the Chinese whispers…

The announcement by the Chinese of an end to a fixed exchange rate regime, allowing the remminbi to appreciate, has given stocks, commodities and risk-on currencies a boost in early trading. Investors moved out of the safe haven USD with Cable reaching 1.49 before falling back slightly and the Aussie Dollar also performing well on the back of the news.

The move by the Chinese is wildly seen to be a political rather than economic one. With the G20 meeting coming up shortly and the current ‘currency manipulation’ bill working it’s way through the US congress, the decision to let the Yuan have a much greater degree of flexibility sends a positive message to the Americans. The markets have open higher as the announcement has released some of the pressure that was building and any potential trade dispute between the US and China is much less likely.

As well as the G20 meeting, the Chinese may have had one eye on pre-empting the forthcoming US Treasury report on FX polices of US trading partners. Tim Geithner may have been ready to single out China explicitly – not something the ruling party in China needs or wants as it tries to gradually integrate China into the world economy.

The Euro has also performed well this morning, the successful Spanish bond auction last week and the announcement that the EU will release the results of stress tests on 25 European banks, has helped the single currency move towards 1.25 against the USD and 1.19 versus Sterling.

EU president Herman Van Rompuy said data on any institution that failed or performed poorly in the stress tests (published in July) will be publicly available. Such a strong commitment to transparency has gone down well in markets, but there are still doubts around. Such confidence by EU leaders on the strength of its banks (some of which are quite clearly struggling to raise funds in the market) either shows serious confidence in the figures banking chiefs are giving them, or that the tests are designed a priori to show banks strength to the markets.

Call me a cynic, but the latter rather than the former seems much more plausible, until we get greater detail on the underlying assumptions of the tests will cannot know for sure quite what the stress tests are telling us.

UK news: The weekend before any budget is always marked by wild speculation on what might happen to taxes or spending over the next year. The theme this time is universally negative as one would expect. What is going to get cut (child tax credits, public sector numbers & public sector pensions if the papers are to believed) and how fast (straight away) has dominated thinking ahead of tomorrow emergency budget.

A hike in VAT to 20% along with the anticipated rise in capital gains tax and also significant increases in taxes on items such as alcohol and cigarettes seems likely. However, it remains speculation and Sterling will likely tread water in the run up to the announcement at midday tomorrow. Whatever happens, it is the most important budget in the UK for many years and investors will be looking to the Chancellor to create the right balance between reducing the deficit and maintaining economic growth.

Report by Alistair Cotton

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16, June 2010

After a quiet night in the FX markets in Asian trading, the markets opened today with some sell pressure on the pound particularly against the USD. The pound slipped from a touch over 1.48 down to 1.4760. This could be attributed to weaker consumer confidence data released last night- the May index fell sharply by 10 points from April to 65.

However the prospect of another Mervyn King speech tonight at Mansion House could be more on the button, spooking the sterling bulls. In the recent past, whenever Mervyn King has made a public address sterling has always suffered due to his negative but admittedly realistic sentiment on the UK economy. Data already released this morning focused on the UK jobless sector, the data was actually not too bad with May jobless claims in at -30,900 better than the forecasted -20,000.

In addition the claimant count rate came in at 4.6% and the unemployment rate at 7.9%, again slightly better than forecasts at 4.7% and 8% respectively. A muted response to this mornings data for the pound as the market is well aware that unemployment levels should suffer following the emergency budget next week.

Look for the pound to remain subdued today ahead of Mr King’s address later- in fact I would not expect any significant movement in the pound until after Tuesday’s budget.

The surprise in the markets is the recent fightback of the euro which pushed to 1.2353 yesterday against the dollar. This is despite further pressure in the bond markets- this morning we have seen the Spanish/German 10 year government bond yield widen to 218bps, this is a lifetime high and Portuguese/German equivalent widened to 312bps. The move higher for the euro despite the negatives looks reflective of a short squeeze in the markets to shake up what was a market biased on shorting the euro.

I would not expect this relief rally to be sustained especially if the bond markets continue to deteriorate. On top of this there is also news of disagreement to stress testing of the European banking sector with Spain in favour and Germany against, which raises the question why are the Germans so against the idea?

The USD has unwound some of its recent gains following a week with little excitement (like the World Cup so far) and no huge surprises leading to gradual appetite coming back into the frame. Later today from the US, the pick of which is the Producer Price Index, Industrial production and a speech from Fed chairman Ben Bernanke.

Report by Phil McHugh

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14, June 2010

This morning the Office of Budget Responsibility delivers its first independent assessment of the outlook for the British economy and the budget deficit. This has some important ramifications for the British Pound in the both the short and log run.

We will get the first glimpse of whether the scorched earth legacy supposedly left by the previous Government is as bad the new Government has said it is – and a downbeat fiscal forecast would undoubtedly see a fall in the value of the Pound. However, the Chancellor would love to see the forecasts confirm the message he has been driving home, namely that to get the British economy back on the road to recovery, deep cuts to government spending are needed.

Returning Britain to long term sustainable growth would see the Sterling rise towards it long run average levels against the Euro and the Dollar (but it is far from clear if demand in the economy after the cuts are implemented will be able to support growth in the medium term)

The quarterly inflation report from the Bank of England also released this morning suggests the market expects interest rates to stay low for an extended period. Spencer Dale, chief economist at the Bank, highlighted the Eurozone fiscal crisis as the main concern over UK growth and said that Britain will continue to suffer the ill effects of the crisis even as the economic recovery continues.

Mixed messages from the Bank however as Andrew Sentence, member of the MPC, raised the possibility of higher interest rates (due to far lower excess capacity in the economy than the bank originally thought and the higher inflation that this may produce). Sentence suggested rates may rise as early as the second half of the year. Early today we saw Sterling trading strongly on the back of this news.

On Friday, currency markets continued to track the swings in global investor sentiment. European stocks extended earlier gains in the US and Asia. There was some market chatter arising from a press article that the EU was preparing to activate a rescue package in case Spain asked for it. However, Spanish-German bond spreads widened only slightly and EUR/USD easily held north of the 1.21 mark.

Italy also succeeded in selling all of their planned €7bn of bonds. EUR/USD even tested the key 1.2150 area going into the publication of the US retail sales data which came out at a disappointing -1.2% month-on-month. However, even as the figure was a disappointment, the damage for equities and also for EUR/USD was limited. A better than expected Michigan consumer confidence release also eased the potential negative impact of the retail data.

This week the main data releases are UK CPI and claimant count data and also inflation figures from the US later in the week.

Report by Alistair Cotton

Currency Market Updates by Tom Nadir

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9 June 2010

Sterling held steady yesterday as the reintroduction of a star chamber to quiz ministers on spending decisions marked the start of the Governments formidable challenge of reducing its €156 billion budget deficit. The last time a star chamber was in use was under Margaret Thatcher, but even she did not face cuts of the scale that now face George Osborne.

To maintain a triple AAA rating, Britain must cut £92 Billion (or roughly the annual National Health Service budget) over the next five years according to the credit rating agency Fitch and Mr Osborne made it clear to MP’s yesterday that the role of the State is about to change significantly.

UK social security payments, tax credits and public sector pensions are likely to bear the brunt of any cuts, which may end up being as high as 20 per cent. Mr Osborne cited the example of Canada, which faced similar difficulties to the UK in the 1990’s, but successfully turned a large budget deficit into surplus by strongly challenging ministerial spending decisions. What he failed to point out was the Canadian restructuring was achieved in a period of strong world growth with foreign demand able to replace government spending.

We are certainly not in this situation now, and we are far from a consensus over whether current fiscal tightening will put Britain back on the long term path to growth or tip the economy back into recession. This uncertainty is reflected in the markets; Sterling is treading water in the run up to the Bank of England meeting tomorrow and the Emergency budget on the 22 of June.

The euro broke the physiologically important 1.20 level against the dollar on Monday and continues to trade weakly against all the major currencies. This morning there are reports that Spanish banks are having difficulty accessing funding in the European interbank markets, an ominous sign if true.

The contagion from Eurozone members to periphery nations continues to spread with Hungarian Ministers stating their economy was left in a perilous state by the previous government, sparking significant price action in the Florint-Swiss pair. ECB head Jean-Claude Trichet speaks today ahead of the official policy meeting tomorrow and his words will be watched closely for any changes in stance or signals of the outcome of the meeting.

The dollar continues to perform strongly as the safe haven currency, against sterling we saw a slight rebound yesterday as Fed Chairman Ben Bernanke suggested the US economy was on track and had gained “a good bit of momentum” in consumer spending and investment. The US Stock market also finished yesterday in positive territory and with data from China showing export growth of 50% yoy, we may see a return to risk today and the corresponding move out of dollars and into riskier currencies.

Report by Alistair Cotton

Currency Market Updates by Tom Nadir

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7 June 2010

“The Euro will be dead in five years”- the startling view from an interview with 25 leading city economists in Sunday newspaper this weekend.

The article suggests that the 16 state currency may not continue in its existing membership “for a week let alone the next five years”. In the first major collection of City opinions since the election, the findings suggest that the new government will face a serious full-scale crisis with their biggest trading partner in their first few years in office.

The latest European administration to worry the markets is the new Fidesz Hungarian government, who suggested their predecessors had mis-led the population and markets about the financial state of the country. In order to try and prepare the population for the strict austerity measures that they will need to introduce, a newly appointed senior member of the government stated that Hungary has only “a slim chance” to avoid a “Greek situation”.

So with markets still concerned how the untried Fidesz Party are intending to marry up their populist policies with the austerity demanded by the IMF in return for its ongoing aid programme, the government’s first action was an apparent threat of default. Given the Eurozone countries’ exposure to Hungary, it is no wonder that the Euro dropped in value. Concerted fire-fighting has limited further erosion this morning but EUR/USD has hit a new low of 1.1873 over night.

Over to the US and the Non Farm Payroll. It was a disappointing Jobs report on Friday afternoon after figures suggested that 431,000 jobs were added to the economy in the month of May after it was widely considered to be in excess of 500k. In addition to the top line weak data, the fact that temporary census workers accounted for 411,000 of the jobs could suggest that Uncle Sam’s recovery could be slowing.

Finally, UK Prime Minister, David Cameron, has spoken this morning and given a stark warning about the action needed to tackle Britain’s budget deficit and public debt. His key take outs were:

* Overall scale of deficit problem is even worse than we thought

* Potential consequences of deficit more critical than we feared

* Last government’s estimates show debt interest payments at 70 bln in 5 years

* Economic growth will not fix borrowing as much of deficit is structural

In terms of significant data this week we have an interest rate decision on Thursday in the UK and Retail Sales figure in the US on Friday.

Report by Philip Ryan

Currency Market Updates by Tom Nadir

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2 June 2010

Yesterday, Cable had its best 24 hours in recent weeks as the Prudential-AIA deal collapsed inducing a 260 pip rally. This welcome boost for Sterling came through the unwinding of billions of dollars bought in anticipation of a merger with one of South East Asia’s largest insurers.

In addition to the Greenback sell off, the pound found support with positive PMI manufacturing data for May reaching 58, a 16 year high and good housing data from the Land Registry report which indicated home prices rose 8.5% yoy, the fastest rise since September 2007.

It was another poor day for the Euro yesterday, with worrying signs that the euro zone debt crisis may be spreading to the banking system. Spain’s second largest savings bank Caja Madrid is understood to have sought a bailout package worth €3 billion from a government rescue fund.

This is a double hammer for the bank who only last week had its rating placed on Credit Watch negative by Standard & Poor’s, which expects pressure on profits this year. This is further bad news for the Bank of Spain as they push for mergers amongst the smaller saving banks.

The news sent shock waves into the markets, the Euro fell to a 4 year low against the Dollar and currently sits at 1.2233 and 1.1993 against Sterling at the time of writing.

It was a mix bag of European data yesterday with EU statistics estimated that 10.1% of EU citizens were unemployed and increase of 0.1% month on month. However Germany indicated positive unemployment data falling from 7.8% to 7.7%. Furthermore boosts in export as a result of the weaker Euro drove the positive GDP growth in Germany, France and Spain for the first quarter of the year.

Finally, US manufacturing data from overnight was certainly positive amid signs that the US economy might indeed be able to reinvent itself as a manufacturing hub. The data out of China yesterday was certainly not particularly good but if the US economy is stable, then the world economy stands a chance of staying healthy in the long term.

Report by Philip Ryan

Currency Market Updates by Tom Nadir

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26 May 2010

Yesterday was packed full of announcements from the Eurozone, some welcome some not. First, Italy followed Greece, Spain and Portugal in outlining €20bln of government savings aimed at bringing their deficit below the EU threshold by 2012.

Second, Spain announced the merger of four regional savings banks to one, in the process creating its fifth largest financial institution and, it is hoped, bringing much needed stability to the beleaguered Spanish banking system. The shotgun marriage comes hot on the heels of the Spanish Governments rescue of Caja Sur, another regional lender, after its own merger fell through at the final hurdle.

The not so welcome news is that Germany is looking to extend the ban on short selling to all shares (this is extended from government bonds, credit default swaps and the top 10 German financial institutions). Quite how this unilateral ban will work when it looks as though we are entering a fully blown bear market in not clear, but we do expect continued volatility in the EURUSD and the GBPEUR pair as investors try to gain from falling markets.

In Britain, the new coalition government announced their plans for the new parliament with a raft of new bills outlined in the Queen’s speech. The highlights and those most likely to affect the FX markets include the Office of Budget Responsibility Bill, which will take economic forecasting out of the Treasury’s hands and the financial reform bill which will break up the tripartite system and will also investigate bank levy’s and the breaking up of large banks.

All the announcements had zero impact on Sterling yesterday, as did the revision upwards to of GDP figures, events abroad are deemed much more important at the moment in valuing the Pound.

Today is quiet on the data front, we have USD Durable orders new home sales but the markets are waiting for the US GDP numbers due out tomorrow.

Report by Alistair Cotton

Currency Market Updates by Tom Nadir

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25 May 2010

The euro weakened for a second day against the US Dollar, the Japanese Yen and the British Pound as signs the European debt crisis is spreading revived concern the region’s recovery will slow. In particular, the 16 nation currency fell to within one yen of its weakest point in more than eight years after the IMF urged Spain to do more to overhaul its ailing banks.

Markets are concerned about what policy makers can do to contain the debt crisis should it spread from Greece to bigger nations like Spain and Italy. The IMF welcomed the new Spanish austerity measures, referring to plans to rein in its budget deficit with the deepest cuts in three decades but expressed concern over its banking industry and the slow reaction in consolidating ailing lenders with stronger partners. The EUR/USD is now back trading close to the May 19th four year low.

Despite recent acceptable data from the Eurozone countries themselves, there is a real fear that the recovery will sputter to a halt amidst the internal wrangling of how to deal with the spiraling funding crisis. This will obviously have a knock on effect towards the global recovery, with the UK especially exposed to a weaker European market.

Sterling has accordingly been shorted aggressively, but largely against just the Dollar and the Yen. It has managed to gain slightly against the Euro on the back of QoQ GDP coming in as expected at 0.3%.

The US was decidedly quiet yesterday although we are still experiencing US$ LIBOR ticking higher on a daily basis adding further fuel to the Dollar strength argument. The market appears to be waiting for anything tangible on exchange rates emerging from Geithner’s meeting with Chinese officials.

Yesterday they appeared to skirt the issue and spent most of their session together discussing Europe and the implications to both countries of the current situation. Today’s final session could be more interesting.

This afternoon we are scheduled to get the latest US consumer confidence figure for May which is expected to show a pick up in confidence. Equities, falling bond yields and rising short end interest costs will provide more influence.

Report by Tim Lewis

Currency Market Updates by Tom Nadir

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24 May 2010

The Euro recovered somewhat on Friday, reaching a one week high against the Greenback as buyers returned to the Euro and halted the currency’s decline. This welcome support came on the news that EU officials pledged to tighten sanctions on high-deficit member countries and said that no European country will be allowed to renege on its debts.

In the UK, today sees the start of a new age of austerity as the Government announces £6 billion of immediate spending reductions, paving the way for much deeper cuts in the future. The Liberal-Conservative coalition is hoping that these initial cuts will prepare the population for severe fiscal measures next year with reports of up to 300,000 public sector redundancies. Despite these unpopular decisions, markets have been indicating that they want these measures in place if Sterling is to recover against the majors in the long term.

In the early session this morning, the Euro has given back some of these gains with traders reported to be selling into the bounce on ongoing concerns about the outlook for the Eurozone. To add the Euro’s problems, concerns that the EU credit crisis is spreading with the announcement that the Bank of Spain is to take over the running of one of the country’s saving’s banks.

This pushed the Euro lower against the dollar and sterling from highs of $1.2510 and $0.8635 respectively. However the Euro remains well off last week’s four year low of $1.2146, as markets awaits further developments in terms of the sovereign risk issue.

A relatively quiet week in terms of data with only UK and US GDP figures of note but all eyes will remain on the UK and Eurozone countries as they announce their individual austerity measures.

Report by Philip Ryan

Currency Market Updates by Tom Nadir

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Have we seen the euro bottom out?

Europe is under severe pressure with all the huge economic problems surrounding Greece followed by Portugal, Spain and Italy particularly. The PIGS of Europe. All this economic uncertainty and the huge bail out packages has had a dramatic affect on the performance of the euro over recent months.

The Eurozone countries are accountable to the other 16 nations who gave up their own currency to join so cannot print money at will to inflate themselves out of the problems as they can in the US.

We could be seeing some strong opportunities in this market as this video highlights.

Video: Don’t be surprised when one euro equals one dollar!

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17 May 2010

The Euro has continued sliding against the Dollar, reaching the lowest level in four years. Concerns remain about the massive bailout package announced by the EU and IMF last week and how effective (or not) it might be addressing the core issue affecting troubled EU member states, namely huge fiscal deficits.

The ECB have been intervening directly in secondary bond markets, bringing some well needed stability and halting the huge volatility in yields over past couple of months. The side effect of the ECBs intervention has been to move all traders with negative view of the Eurozone from the bond market to currencies, and with EU officials publicly announcing the need for a weaker currency, it looks like a one way bet at the moment.

Most of the financial press over the weekend were calling for parity in the euro, but if the market is over sold we may see a short squeeze over the next few days before the Euro moves lower again.

The new UK Government is indicating that is making deficit reduction a priority, Chancellor George Osborne has just announced £6bn of savings the details of which will be announced next Monday. The emergency budget (EM) promised by the Tories in their manifesto will be on the 22nd of June.

The Office of Budget Responsibility (newly created by the Conservatives) will publish economic forecasts before the EM because Osborne thinks the market has completely lost confidence in the current Treasury forecasts (3.5% growth next year does seems on the high side). Sterling has rallied on the back of this but market sentiment seems still to be for further falls in Sterling against the Dollar.

In a busy week for data releases, in the UK we have the Bank of England minutes released on Wednesday, CPI figures on Tuesday and retail sales on Thursday. In the Eurozone we have Economic sentiment and CPI data and a large amount retail figures from member countries. With the market still jumpy, expect further volatility in the Euro pairs in the run up to the releases.

Report by Report by Alistair Cotton.

Currency Market Updates by Tom Nadir

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14 May 2010

In euro trading news the Eurozone took yet another pounding yesterday as rigorous fiscal tightening threatens to dampen an already weak recovery. Eurodollar has crashed to 14 month lows of $1.25 after boosting to nearly $1.31 on Monday after the $1 trillion emergency rescue package was announced.

News from one of the “PIGS”, Portugal is attempting to cut €2 bn from its budget gap. This has done little to reduce the weakness in the Euro and with more tax hikes and salary cuts due, we could see ugly scenes like those witnessed from Greece. ECB President Jean-Claude Trichet has stated the ECB is not “embarking on quantitative easing” and he reiterated that “the Governing Council will not tolerate inflation” leading to speculation a rise in interest rates could be on the horizon.

Sterling has also taken a hit this morning with news that the new coalition has already come to loggerheads. With two political parties with separate agendas leading the country, a schedule for cutting the deficit will take longer to agree and with the credit agencies hovering, a negative outlook over the UK will remain. A cut in the UK’s prized AAA credit rating would have disastrous consequences to the recovery. Data released yesterday showing the UK’s trade deficit widened more than expected, damaged hopes for an export led resurgence.

The dollar has been the main winner from the negative news from Europe as investors run for their “safe haven”. The greenback has also been supported by encouraging figures from the US and expectations that the FED will be the first among the major central banks to raise interest rates. The main focus from today will be the release of April’s retail sales as Obama and Co look for fuel to extend the rally. Also released today is the University of Michigan’s Industrial production consumer sentiment survey.

Report by Report by Tim Lewis

Currency Market Updates by Tom Nadir

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11 May 2010

Positive trading in the Eurozone during Monday’s session was erased overnight after doubts surrounding the success of the bailout package emerged. Merek Belka, the director of the IMF’s European department, said he doesn’t consider the rescue package a “long term solution” to the regions debt crisis.

These “well timed” comments sent the Euro plummeting back to last weeks levels against GBP and USD. Concerns are growing that the “shock and awe” €750bn lending package will not change the structural problems plaguing the Eurozone and help debt strapped nations with widening deficits and slower growth.

Pressure on Sterling continued as PM Gordon Brown announced he would step aside in a last-ditch effort to keep Labour in power. With Britain’s two big parties courting the Liberal democrats, the hung parliament scenario could remain for some time to come.

The pound dropped close to a percent to the majors in the ensuing period as the continued uncertainty lends to jitters in the markets and the pound. The Bank of England kept its benchmark interest rate at a record low of 0.5% while making no change to its quantitative easing programme.

Focus remains on the outcome of the inconclusive election, but Wednesday’s UK Quarterly Inflation Report will also be watched closely with more upbeat predictions expected. Of course, the Euro Bailout will continue to dominate market movement.

Report by Tim Lewis

Currency Market Updates by Tom Nadir

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