UK Inflation Rising Again


 

Yesterday’s publication of the UK inflation rate made for an interesting day for Sterling.

19, January 2011

The current rate now stands at 3.7%, getting on for double the Bank of England’s official target rate of 2%, surges in the price of fuel, transport and food the headline grabbers of price rises across the board pushing Sterling over the magical 1.60 level for most of the day.

The usual media circus ensued, most of the articles giving the impression of modern day Britain as the new Weimar Republic and informing anyone who would listen about the Bank of England’s incompetence and why they should raise rates immediately. Once we drill down into the data, we get a slightly less hysteric picture. Tax rises and the drop in the value of Sterling seem to be much more influential to the current inflation rate but even with these effects stripped out the inflation rate would be above target.

The problem for the BoE is in managing inflation expectations with the rate as it is. If current inflationary pressures are indeed temporary (which in one sense they are) then they need to be more proactive in forcing this point home and keeping expectations anchored. For Sterling this should be positive, but probably not as important as market currently thinks.

The meeting Euro zone ministers failed to produce any agreement on an enlargement to the current bail-out fund or any more for further fiscal consolidation. The spreads on bonds between the periphery nations and Germany once again blew out, with the yield on the Spanish 10 year passing the key 7% level we have discussed before as being the level that signalled the beginning of the end for Ireland and Greece.

In terms of data for today we are very light, with only Euro Zone construction data on offer. The focus will remain on ministers coming to some agreement over the enlargement of the bail-out fund and also if there will be any changes in what the fund is used for, which may include buying Euro Zone debt.

The Dollar took a back seat yesterday and that will probably continue today with little on the horizon. Thursday sees the release of a big stock of figures including initial jobless claims to it is looking like a quiet end to the week for the Greenback.

Report by Alistair Cotton.

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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Euro Trading Lower


 

Anyone who was short the Euro last week got their fingers burnt, with the Euro/Dollar pair rising almost one and a half percent on the back of successful bond auctions in Spain and Italy.

17  January 2011

Today the euro posted its largest weekly gain in almost two years after successful auctions of Portuguese, Spanish and Italian debt garnered more demand than expected and Germany’s Chancellor Angela Merkel pledged to do whatever’s necessary to ease the sovereign-debt crisis. The 17-nation currency rose last week against all of its major counterparts except the Swedish krona and Danish krone including a 4.2% weekly gain versus the US Dollar and a 2.1% move higher against Sterling

It was another round of positive news for Uncle Sam on Friday’s with data indicating that consumer spending is coming back to life. Inflation pressures on the other hand, remain negligible, based on the core reading stressing the Fed’s concern that inflation is running constantly below the target level. Therefore it looks like it will be a long time, most likely late into 2012 before we see a rate rise in the US.

While Bernanke is in no rush to increase rates, rumours are circulating within the European Central Bank (ECB) that they are more eager to pull the trigger for higher rates. ECB President Trichet’s hawkish press conference last week caused a stir and marked a clear shift in ECB reaction towards a more hawkish stance.

So far this morning though, the euro has marginally fallen against the dollar, snapping last week’s five-day gain, again on concern the region’s debt crisis will continue to worsen, even as European finance ministers meet today to hammer out a new strategy to stem the contagion.

Fitch’s decision to cut Greece’s sovereign debt rating to BB+, outlook negative, from BBB-, citing its “heavy public debt burden” which renders “fiscal solvency highly vulnerable to adverse shocks”, also weighed on the single currency this morning. All three of the main ratings agencies now rate the sovereign as sub-investment grade.

Looking at the week ahead on the economic data front, the calendar is reasonably light starting with today’s bank holiday in the US. The key data this week is primarily due from the UK with December’s inflationary figures scheduled for tomorrow morning, unemployment data on Wednesday followed by retail sales on Friday.

Report by Philip Ryan

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Outstanding Results For Sterling


 

While Sterling and the US Dollar are enjoying something of a revival it is at the expense of the Euro.

5 January 2011

Given that nearly all the UK was frozen solid for almost all of December, yesterday’s tremendously positive UK production data caught many in the market by surprise. British PMI rallied to 58.4, the quickest pace of growth since 1994. Sterling has reflected the weather recently, depressed throughout last month and over the Christmas holidays.

The Pound was up almost one percent against the Dollar and half a percent against the Euro yesterday as investors’ optimism on the UK economy returned. Quite how long the positive sentiment will last is anyone’s guess – along with Sterling the FTSE 100 has broken through the key level of 6000 over the last few weeks and even the recently downbeat housing market received some good news with mortgage approvals increasing. But given that most items are going up in price after the VAT hike and the Government cuts begin to bite, the current optimism may once change as quickly as the forecast second cold snap takes hold.

Continuing the positive news flow, in America the minutes from the latest Federal Reserve Open Market Committee (FOMC) were released last night. In it, the Fed showed cautious optimism on the ongoing economic recovery. Labour market conditions, once of the Fed’s main concerns, seemed to be improving but the pace of recovery is still “disappointingly slow”. Unsurprisingly, given the ‘better, but not that much better’ stance, the Fed made no change to the ongoing QE program. Alongside, the Fed minutes, we also had positive US data. Factory orders rose as did auto sales to their highest level in 16 months.

The flip-side to the Dollar and Sterling performing strongly is that Euro/Dollar has been moving in the opposite direction. Another year begins, but it’s the same old problems causing further Euro weakness, namely the ongoing funding issues of Eurozone nations. Several commentators suggested Portugal will throw the towel in and tap the bail out fund at some point in the first quarter which can’t have helped the selling pressure.

But not even a Chinese announcement that it will remain a long term investor in Spanish debt seems to be able to reassure investors that €200 bn will be successfully rolled over by Spain in 2011 alone.

In terms of data today, we have Eurozone PMI data and from the US ISM non-manufacturing figures and employment change.

Report by Alistair Cotton

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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Euro Weakens In A Cold Run Up To Christmas


 

The Euro support is weakening as a cold Christmas looks on the cards…

20 December 2010

The present temperatures in London gives the best analogy for the various markets this week. The Met Office is urging people to stay at home after London was hit by serious snow, and that is exactly the same thing traders will be doing with their cash this week. Expect very light market conditions, and current themes across the Euro, Dollar and Sterling are bound to continue into the New Year.

Eurowise, the IMF published a staff report on the viability of the financial reforms in Ireland and it was not pretty to read. According to the IMF the challenges facing the Irish economy are “intense”. The currency market reaction? The Euro/Dollar graph on Friday looked like a black run at Chamonix. 2011 will not likely bring any rest-bite for the single currency.

Even more countries will be pulled into the markets crosshair, which means more Euro weakness over the coming weeks and months. We all remember the Greek story was like observing a slow motion car accident. It seems inescapable that the same drawn-out future lurks in wait for a few more Eurozone nations, and the stability of the single currency rests on the capability and patience of Germany to keep playing backstop.

Just like the Euro trading news, Sterling will probably trade at, or similar to current levels with little economic details this week to push it in any certain direction (it might be pulled by developments in the Eurozone however).

Wednesday sees the release of the Bank of England’s minutes, with the prolonged split in voting between Andrew Sentance, Adam Posen and the rest of the rabble. It will also be intriguing to see their discussion on short-term inflation and just how long the bank expects it to return to target.

Increasing US bond yields have been the driver of new moves in cable towards the 1.54 level. Regardless of whether you believe that this is due to increased optimism of the US economic recovery or investors eventually running scared of American government debt we will need to wait and see, but the QE pumped stock market continues to rise.

There are lots of low key US numbers due for release this week including new house sales and buyer confidence which may or may well not lend support for the recovery narrative but just like the Euro and Sterling, range trading throughout the week is the most probable result.

Original Report by Phil McHugh

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Irish Bailout As Dollar Gains


 

Ireland counts the cost of the bailout as the USD reaches a two month high against the Euro.

29 N0vember 2010

So we now know the gory details. First, the main points: the Irish bailout of €85 billion will be made up of external support from the IMF and EFSF of €67.5 billion and domestic funds of €17.5 billion. The Irish contribution comes from the now decimated National Pension Reserve Fund with the UK making a bilateral loan of €3.8 billion as well as contributing to the IMF funds (and you thought the money saved in recent round of UK spending cuts was used for paying down our own debt…).

The effective interest rate that the Irish will pay on the loan is reported at 5.8% according to the official document, but private calculations have put the figure closer to 7.25% and this will lead to an astonishing 20 per cent of Irish tax revenues servicing the debt by 2014 according to calculations.

The main controversy is the news that senior bond holders in the Irish banks will received no haircut on their holdings – no doubt due to contagion fears as investors dump bank bonds in the event of any short back and sides – and the banks are estimated to need an extra €8bn to get core Tier One capital to at least 12 per cent.

And come up for breath. More than three quarters of Eurozone government debt is held by Eurozone members, mostly financial institutions so you can see why this package wants to protect senior debt holders, but politically there is huge pressure to make sure that tax payers do not shoulder the whole burden and write downs on bond holdings in the future cannot be ruled out. Inevitably the Euro continues to fall against the USD which continues to perform well in the face of heightened uncertainty.

Sterling has also opened the week on the back foot as UK institutions are reckoned to be the most financially exposed to the Irish, particularly RBS through Ulster Bank. UK House prices have continued to fall for the fifth month in row, but mortgage approvals came in slightly ahead of forecast. There will need to be a much larger turn around in approvals for it to have any significant impact on house prices in a falling market. This week is a light one for Sterling data which the only figures of note UK PMI on Wednesday and further house price figures on Friday.

The Dollar trades at a two month high against the Euro and is looking at its first monthly gain versus the Yen since April. In a week which will probably prove to be highly embarrassing for the US after 250,000 classified diplomatic cables are released by media around the world, we have ISM manufacturing, consumer confidence and non farm payrolls to look forward to. But not as much as those cables. According to reports, the cables will reveal disparaging remarks about Gordon Brown and David Cameron, my bet is that the UK public will probably agree with whatever is said

Report by Alistair Cotton

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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Euro Trading Sees USD on the Back Foot Again


 

The euro has gained against the US dollar but this is not likely to be sustained.

19, November 2010

Earlier this week we saw a squeeze higher on the USD catalysed by good US retail sales numbers at the close of last week but more so through the concern over Ireland tripping into USD strength. Today the market is appeased as a bailout is inevitable – ECB and IMF officials are looking into the formalities of what will be needed for the Irish economy.

The euro has pushed higher on this realisation trading back up to 1.37 against the USD supported by middle-eastern buying. The key question is will confidence remain in the Euro arena – according to Citigroup Inc and Nomura Plc it is a no. They say that relief will be short-lived as attention turns to who is next and all fingers are pointing to Portugal. The Portuguese Finance Minister said that while “there is a risk of contagion”, that does not mean that the country will seek financial aid- so the merry go round could start again.

On top of the bailout plans the Ireland will also announce a 4 year fiscal plan to help steady the ship. Although Dublin insists that there is no threat to Ireland’s 12.5% corporation tax, the mood over the loss of economic sovereignty was summed up by Mary Lou McDonald from Sinn Fein who stated “Officials from the EU and IMF and any other vultures circling around this country should be told to get lost”. Tough times ahead for Ireland and there is still a possibility that sovereign issues will continue to weigh on the euro for some time to come.

Focusing on the UK, retail sales rose for the first time in three months, by 0.5% providing a much needed boost as we approach the Christmas period. The pound has also been lifted on the news of a bailout for Ireland – the UK is exposed to Irish debt and this led to sterling weakness earlier in the week which has now been somewhat lifted.

A very quiet day ahead with no economic releases due, however there are a few speeches this afternoon from ECB, MPC and Fed officials. The speech from Ben Bernanke of the Fed will be the highlight as he steps up his defence of the latest round of Quantitative Easing for the US economy.

Report by Phil McHugh

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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G20 Meeting Turns Into Non-Event


 

Plenty of data out later this week as the G20 meeting fails to deliver anything concrete.

15, November 2010

The G20 meeting was the non event that everyone was predicting, with any firm commitment over currency reform off the table, the best we got was an agreement to agree – nothing concrete in terms of a path forward and certainly nothing of substance to make sure we avoid a trade war further down the line. (Nothing new for the G20 here then – see G20 – The Commitee That Cannot Commit )

The hope was for a commitment to restrict current account surpluses/ deficits to a percentage of GDP but surplus countries (Germany, China Etc) dug their heels in and even refused to accept such loose dialogue. Friday’s rumour that Ireland was about to go cap in hand to the EU gathered momentum over the weekend, Irish Prime Minister Bryan Cowen denied that a bail-out was needed. However, further comments this morning by Irish officials has left the door open for EU assistance.

German comments suggesting the Irish should accept the bail-out to avoid further contagion in debt markets (read Portugal and Spain) spooked the markets and undoubtedly made any market based resolution even less likely.

More poor data from Rightmove continues to show deterioration in the British Housing market, but this has not affected Sterling in the majors very much in light of the larger Eurozone story. The Bank of England minutes are released on Wednesday (not to be confused with the Quarterly Inflation report last week) showing MPC voting preferences from the last meeting.

We also have CPI and RPI inflation data out tomorrow which no doubt show inflation still running ahead of its target level of 2% plus or minus 1%. Finally we have jobless claims, retail sales and public sector debt levels also out this week in a busy one for Sterling.

Importantly for the Dollar we also get to see US CPI data (out on Wed). The US has flirted much closer with deflation than the UK and it will be very interesting to see how the inflation rate has reacted to the spectre of further QE. The effects of the bond purchase program will take several months to filter through into the official inflation figure. Inflation expectations, which also play a role on the inflation rate should rise as more QE is announced. This will take a much shorter time period to be reflected in the CPI data. We also have US retail sales in the important build up to Christmas to digest.

Report by Alistair Cotton

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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Sterling Suffers And US Dollar Waits…


 

Tonight’s FOMC meeting leaves currencies hanging…

3 November 2010

In the UK yesterday, trading was fragmented at best, with Sterling suffering after the sharply weaker construction PMI in contrast to the slightly improved numbers from Germany, Italy and to a degree, France. The current overall reluctance to hold Dollars combined with a nagging doubt over the resilience of the Euro tempered any Sterling losses, and rates between the G4 nations look set for a short period of consolidation. Economic data today has proved positive for Sterling; longs have benefited this morning with UK PMI data coming in at 53.6 which has boosted cable to 1.6133 at the time of writing.

The majority of analysts predict the Fed to pump $500 billion in asset purchases stretched over the next 6 months. The effect on currency markets will be based on the movement from this figure. If the Fed produces a greater result, for example of $1 trillion plus, the greenback will face renewed pressure. On the other hand, a more vigilant measure of quantitative easing will be US dollar positive.

One must accept that the Fed will probably steer clear of one particular economic direction to keep their options open and maintain an open ended program based on future economic data which it will use to adjust its levels of QE. Despite the cable surge, the dollar will likely trade within a tight range before the announcement. However with so much in the price, it may be astute to be suspicious of a sell rumour and buy on the fact.

As it stands many currencies are at pivotal levels against the USD, with AUD/USD trading around parity following yesterday’s surprising Australian rate hike, EUR/USD maintaining above the 1.4000, GBP/USD resuming gains above key psychological 1.60 level in spite of weaker than expected construction data, whereas USD/JPY continues to aim for 80.00. In addition, both AUD and CAD are close to parity with the USD.

The Fed result will be influential in shaping if the USD continues to linger on the weaker side of these key levels. Ahead of the FOMC meeting the USD continues its downward pressure particularly against Asian currencies as a result of renewed appreciation in the ADXY (a weighted index of Asian currencies) against the USD this week.

Even though it looks like central banks in Asia have the go head to interfere at will following the recent G20 meeting the force of capital inflows into the region is a growing concern for politicians. One choice is placing restrictions on “hot money” inflows but up to now no central bank in the region has shown an enthusiasm to implement measures that are deemed as particularly aggressive.

Report by Philip Ryan

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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Currency Market News:Pound Gains Ground


 

The pound gained ground on the dollar and euro against a backdrop of quantitative easing fever…

29, October 2010

The greenback fell yesterday, losing some of the gains made earlier in the week as a short covering rally fizzled out and US treasury yields fell. Analysts consider dollar selling against the euro and other currencies by reserve managers was forcing the US currency down and that it would remain under selling pressure, especially if the Fed says it will continue to pump money into the market to improve liquidity.

The issue for the US dollar seems to be whether the market believes the Fed will deliver significant quantitative easing over a definitive time period. In other news out of the US, the durable goods data showed an increase to 3.3% against expectations of 2%. Month on month new home sales also showed an increase in September at 6.6% against expectations of 4.2%. The market reaction to these figures was muted as markets await the QE2 announcement in November.

Confused about quantattive easing? Watch the video …

Sterling strengthened against the euro and US dollar on Thursday after stronger than expected Q3 GDP data cooled speculation of an extension of quantitative easing by the BoE in the near future. The pound got a further boost from talk that there is persistent buying interest on UK sovereign bonds from Middle East. In other UK data news, yesterday saw UK CBI reported sales dropped less than expected to 36 in October.

In the Euro zone, economic sentiment indicators showed a general improvement in October. The European Commission’s monthly sentiment survey showed sentiment in the 16 countries using the euro at 104.1 points this month from 103.2 in September, the highest reading in nearly 3 years. The improvement was mostly due to more optimism in Industry, where sentiment rose to 0 from -2 in September. Confidence among consumers remained unchanged at -11 and the service sector also remained unchanged at 8 points.

The German unemployment rate fell slightly to 7.5% in October, its lowest level since in 18 years as the impact of persistently strong growth from Germany continues to filter through to the jobs market. The number of jobless fell by 3,000 to a seasonally adjusted 3.153 million.

Today, up until the US GDP data this afternoon, we are a tad bereft of scheduled numbers having just the composite Eurozone employment figures to look forward to. The overall number is expected to be maintained at 10.1% as although things seem to be improving in Germany, with their jobless figure reportedly hitting an 18-year low yesterday, the situation elsewhere in the region appears much more grim

Markets look resigned to having a slow morning with an early softness in Asian equities mirrored but so far, not carried forward on European bourses.

Report by Philip Ryan

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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S&P Gives Sterling A Boost


 

Sterling got a boost from Standard and Poors yesterday while the US Dollar recovered amidst reviving consumer confidence. Further US economic data is due out this afternoon.

27, October 2010

The UK’s unexpectedly strong growth over the last quarter gave sterling a significant boost. The surprise rise in 3rd quarter GDP to 0.8% was led by the services and construction sector, prompting economists to up their growth forecasts for 2010 to around 1.8%. Sentiment was also helped by Standard & Poors affirmation of the UK’s AAA rating and restoring its outlook from ‘negative’ to stable as they stated “the coalition parties have shown a high degree of cohesion in putting the UK’s public finances onto what we view to be more sustainable footing”.

The S&P announcement was seen by George Osborne as a “vote of confidence” in the government in a “double-dose of good news” for the economy. However, markets need to be aware of the fact that the recent cuts announced in the UK have not fed through the economy yet. Above-trend growth coupled with above-target inflation will leave the Bank of England with little reason to return to quantitative easing and adds weight to Sentence’s hawkish stance that it is high time for a rate hike.

Preliminary German Consumer Price Index figures headline the economic calendar in European hours, with expectations calling for the annualised inflation rate to hold at a manageable 1.3 percent. The outcome may not prove particularly market-moving, reinforcing established expectations that the European Central Bank will remain on hold for the foreseeable future.

The US dollar also regained some ground as confidence amongst US consumers rose from a 7-month low. Although households turned less pessimistic on the outlook for the economic recovery, American’s views on job availability and wage prospects soured, highlighting the risk that unemployment hovering around 10% in the US will limit future spending. In addition, concern over deteriorating property values may also be weighing on American psyche.

Dollar sellers now appear to be in the process of locking in some profit as investors hold steady ahead of Friday’s US Q3 GDP figures and the Federal Reserve’s policy meeting next week. An element of caution is now starting to infiltrate the markets as thoughts turn to what steps the Fed might take to assist recovery in the States and the form of any further stimulus packages.

The Australian Dollar sank against the spectrum of major currencies after third-quarter Consumer Price Index figures fell short of expectations, weighing heavily on the outlook for future interest rate hikes. The report showed the annual inflation rate cooled to 2.8 percent, the lowest yet this year while the quarterly increase amounted to a smaller-than-expected 0.7 percent.

US economic data out today includes durable goods for September with expectations of a rise of 2%, after last months 1.5% decline. New home sales for September are also out slightly later on, and a rise of 4.2% expected.

Report by Tim Lewis

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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USD Fights Back


 

18 October 2010

The USD made ground over night after better-than-expected manufacturing data and an unexpected rise in retail sales. This  has reduced concerns that falling consumer spending may weigh heavy on the economic recovery. The US Treasury’s budget shortfall remained in the trillions and the University of Michigan consumer confidence index fell to 67.9 points. Consistent high levels of unemployment (unchanged at 9.6% in September) and increasing initial job claims numbers are contributing to downside pressure.

Overall, the Dollar has spent the last 6 weeks sliding lower on the opinion that QE2 is required in order to firm up the declining US economy. Ben Bernanke’s explanation on Friday indicated that additional monetary stimulus may be necessary, stating “there would appear… all else being equal… to be a case for further action” in order to “promote our dual objectives of maximum employment and price stability” yet gave no indication on how much, or when.

The USD pared losses and finished the day higher, which suggests the contrast between expectation and reality that can exist in currency markets and questions how much easing is already factored into the price. This in turn could make the Dollar susceptible to sharp rebounds. The market will now seek direction from the FOMC meeting on Nov 3rd.

The pound will be in centre stage this week, with markets watching to see what areas of the economy will be most affected by Osborne unveiling the details of the largest budget cuts in UK history and the release of the minutes from the Bank of England meeting (6-7 Oct) both on Wednesday. We’ve already seen reports from the Centre for Economics and Business (CEBR) suggesting the Bank of England will expand its stimulus program by £100bn to boost the economy as growth begins to contract and austerity measures begin to curb spending. They also stated that the central bank will keep its benchmark interest rate at a record low of 0.5% until at least “late” 2012

In Europe, the Euro set a fresh 9 month high against the dollar after Bernanke’s announcement but then late on Friday it reversed and couldn’t hold the gains against the Dollar, finishing the day below the open & implying the recent rally is over and it was time for a correction. Trichet distanced himself from Weber comments over the weekend saying that the majority of the ECB council is still in favour of keeping the sovereign bond purchasing program in place. We now look to Tuesday when Trichet is expected to speak with regards to the European economy.

Expect some significant volatility in currency markets over the week as central banks look to talk their recovery prospects up and their currencies down.

Report by Philip Ryan

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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US Dollar Slides Against Yen and Euro


 

Expect a quiet start to the week before a busy few days in terms of key economic releases. Friday’s release of US retail sales  follows the slide of the US dollar against Yen and Euro.

11, October 2010

On Friday, the US dollar fell towards an eight month low against the Euro on further speculation that Federal Reserve policy makers will shortly signal their willingness to buy more government debt to support economic growth. The Dollar also touched a 15-year low versus the Japanese Yen ahead of tomorrow’s release of the Fed’s September 21st policy meeting minutes. The moves on Friday were primarily driven by the release of the US payrolls report for September.

Both the headline print and the private payrolls component disappointed expectations. US employers cut payrolls by 95,000 workers in September after a revised 57,000 decrease in August. Average expectations had been for a 5,000 drop. Markets are now expecting the FOMC will formally announce renewed balance sheet expansion on November 3rd.

The weekend’s G7/IMF/World Bank meetings ended without any specific agreement on FX matters, despite Eurodollar trading close to 1.40. However, the issue will likely resurface at the G20 meeting of finance ministers and central bankers which begins on October 22nd. Overnight was a relatively quiet Asian session with Japan on holiday.

This calmness likely to continue throughout the day with US markets also closed due to the Columbus Day holiday.

After a quiet start to the week, we have a busy few days towards the tail end in terms of key economic releases. Of note, Friday’s release of US retail sales plus preliminary Michigan sentiment survey for October being some of the highlights. This should help provide some insights into how the US consumer is holding up in the face of ongoing weakness in the labour market.

As sterling continues to be weighed down by the prospect of further action from the Bank of England and the pending budgetary cuts, this week’s round of data which includes the BRC retail sales survey and UK CPI for September should provide further clues for future BoE decisions.

Report by Tim Lewis

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Currency Market Updates: Dollar Index Hits Low


 

4, October, 2010

We look at an interesting week ahead as 4 major banks announce their monetary policies and we await the US employment figures on Friday. This, with the low Dollar index and the the EU-Asia summit taking place, will keep the EUR ready for a test of 1.3840.

Risk appetite remained at the fore last week, with markets failing to be deterred by concerns over Ireland’s banking sector and mounting resistance to austerity methods across Europe. The biggest loser remained the USD, with the Dollar index touching a low of almost 78.00 and speculative positioning (as indicated by the CFTC IMM data) identifying an additional sharp drop in sentiment to its lowest since Dec 2007.

It is a significant week for central bank meetings, with four major central banks announcing their monetary policy including Bank of Japan (BoJ), Reserve Bank of Australia (RBA), European Central Bank (ECB) and Bank of England (BoE). However, the main news for the markets to digest is the job number in the US on Friday afternoon. The RBA is rumoured to be interested in a rate rise by 25bps, the BoJ could announce additional asset purchasing despite both the ECB and BoE unlikely to adjust their fiscal strategies.

Despite the reality that the BoJ is by and large expected to hold its policy rate untouched at 0.1%, it might state additional measures aligned with the backdrop of relentless JPY muscle, a deterioration in economic attitude as reflected in last week’s Tankan survey and fall in exports. Newspapers in Japan indicate that the BoJ could add to borrowing of fixed rate 3 to 6 month loans to financial institutions in addition to buying further short-term government debt.

The methods along with risks of further JPY interference may thwart USD/JPY receding further, however as seen in the boost in speculative net long JPY positions last week, the market is trying to determine the resolve of the Japanese authorities. Strong support is seen around USD/JPY 82.80, with the authorities not likely to permit a split beneath this technical point in the short-term.

Even if we only see specifics of the voting in two weeks in the release of the UK BoE Monetary Policy Commitee (MPC) minutes it is possible that there was a three-way divide within the MPC as evident in latest remarks, with MPC member Posen appearing to favour more quantitative easing whereas the MPC’s Sentance is set to maintain his inclination for higher rates. The pound was a straggler over September as investors continued to worry over potential QE from the BoE. This doubt is unlikely to fade swiftly, signifying restricted gains against the USD and potentially more difficulty against the EUR. Sterling speculative attitude has enhanced but particularly positioning remains short.

Contrary to GBP, the EUR has benefit from USD weakness and looks set to expand on its gains. Even though there is a risk that speculative positioning will before long turn out to be too stretched, it is worth noting that positioning is well below previous highs against the IMM data. EUR possibly will have some support from Chinese Premier Wen’s assurances to support Greece, and a steady EUR. Whereas there seems to be risks associated with the EUR from ongoing peripheral arrears concerns such remarks are expected to be recurring at the EU-Asia summit over the next couple of days, will keep the EUR ready for a test of 1.3840.

Report by Philip Ryan

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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Currency Market Updates: Euro & Sterling Hang On


 

27, September, 2010

Today marks the start of a busy week in the FX markets. A large amount of important data releases are scheduled for release this week and several prominent central bankers are due to speak. This is set against the backdrop of further intervention by Japanese authorities, aimed at curbing Yen strength and further grumblings by the US of China’s refusal to let the Yuan appreciate to fair levels against the Dollar.

The Greenback is yet to recover from last weeks Fed meeting and continues to struggle across the board, this afternoon the Chicago Fed National Activity Index will probably show a further slowdown in economic activity so expect the Euro and Sterling to cling stubbornly onto the gains from last week until tomorrow.

Later in the week US GDP is announced, with forecasts of a slight increase from 1.6 to 1.8 per cent. The Fed & markets will be following the figures intently, as disappointing figures may mark the start of the “exceptional measures” the Fed mentioned in the last meeting.

UK GDP figures are released on Tuesday; again the number is very important to the future path of Sterling, with positive growth vital in the face of the steep government spending cuts just over the horizon. The fear among some economists is the announced cuts reduce growth below the levels needed to service existing debt payments and we enter into a death spiral of further cuts and further reductions in growth, leading to further cuts etc…. The UK housing market also showed further signs of slowing, all Britain’s regions showed monthly price declines in the Hometrack Housing Survey.

The Euro continues to trade strongly this morning, even in the face of mounting pressure on the Irish banking system and their ability to successfully wind up the loss making Anglo Irish. The Eurozone undoubted wants Ireland to find a market solution to their budget problems, but judging from the price they had to pay at last weeks auction, whether they can keep tapping the market for funds or decide to throw the towel in and access the EU bail out fund in still highly uncertain.

Tomorrow sees German CPI figures & French and Italian consumer confidence data released which is forecast to be broadly positive. The risk for the Euro is the sovereign debt problems again dominating the news flow (which is broadly positive) and forcing the Euro lower again.

Report by Alistair Cotton

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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Fed Prepares For The Long Haul


 

22, September, 2010

The Federal Reserve meeting yesterday evening did not throw up any surprises, but the Fed signalled a more sluggish outlook for the US economy and reiterated its willingness to take additional measures to boost the US economy. There was no mention of concrete action as yet, which given the fact that we are rapidly approaching US mid-term elections, is sensible but the change in tone from “wait and see” to “we stand ready to act” was enough to reverse all of the Dollars recent gains in a broad sell off of the Greenback overnight.

Over the next few days we will see if the market is correctly pricing another bout of QE in the near term or if this move will be shrugged off quickly since central bank threats of action has been spectacularly unsuccessful over the past few months. The Dollar sell off also brings the Japanese FX intervention back into focus, as the USD JPY pair moves back towards levels where intervention initially occurred.

Prime Minister Kan has been quoted as saying the intervention in the FX markets in not yet over, so the fear is fast becoming a beggar-thy-neighbour competitive devaluation as central banks scramble to keep exchange rates low in the hope of stimulating the faltering economic recovery. The only problem is that not everyone can do it at the same time, and we can expect emerging markets and the commodity producing nations (since it will be these currencies that will strengthen as others devalue) to be none to happy about the prospect of significantly reduced competitiveness in world markets.

The Euro is benefiting from the USD weakness, although the Irish and Spanish bond auctions were broadly successful (the only issue was the high interest rate the market extracted for buying the Irish debt) it is Dollar weakness that is the main driver and we have moved past 1.33 in the EURUSD pair and under the 1.18 level in GBPEUR. This afternoon we get to see Eurozone consumer confidence, with another improvement forecast, but with a large amount of Eurozone data out on Thursday and Friday we can expect the Dollar to lead the way today.

Sterling is also benefiting from the Fed statement, dire public borrowing figures initially send the Pound lower in early trading yesterday and today’s publication of the Bank of England minutes (usually something that the market takes notice of) showing another 8-1 split in the voting has passed without much notice being taken. For the rest of the week we will probably see Sterling take a back seat until next weeks GDP figures but we should bear in mind the poor data flow in the UK means the pressure on Sterling is on the Down rather than upside.

Report by Alistair Cotton

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US Pressure China As Dollar Falls


 

17, September, 2010

Over the past 10 years, the deliberate undervaluation of the Yuan by Chinese authorities has always been the elephant in the room in FX markets. The Chinese economic juggernaut has been powered by exports of manufactured goods to the west made cheap by very low input costs. Quite rightly, China has been labelled the workshop of the world, and 8% average growth over the past thirty years has turned the underdeveloped middle kingdom to an economic powerhouse & the second largest economy in the world, behind the US.

America has long known China would overtake them eventually as the largest economy in the world, but they feel the Yuan undervaluation is giving the Chinese an unfair advantage. The cheap currency encourages Chinese exports and promotes outsourcing of jobs from the US to China, which in a time of sluggish economic growth and stubbornly high unemployment in the US, automatically makes it political hot potato.

Treasury Secretary Tim Geithner’s comments yesterday that the US would use “all the tools we have” to reverse the bloated trade deficit with China, including WTO rules on fair trade, should come as no surprise in content, only in strength, given the usual soft tone used in diplomatic circles. His comments come on the back of direct Japanese intervention earlier in the week aimed a curbing the strength on the Yen, and raises the prospect of a triangular trade dispute between the three largest economies in the world.

Sterling was, quite frankly, all over the place yesterday. Disappointing retail sales figures pushed the pound quickly lower in early trading, but as seems to be the way just now, we shook the negative news off quickly and resumed the march towards 1.57 against the USD. Improvements in risk sentiment has aided Sterling’s move, as has improving economic data in Europe and the successful Spanish bond auction yesterday. The Euro has been driven higher against the Dollar, lifting Sterling versus the USD as well and we now trade over 1.31 in EURUSD and 1.57 in GBPUSD.

Today, the eco calendar contains only some second tier eco data in Europe. In the US, the CPI and the Michigan consumer confidence are on the agenda. Recently, inflation data were no big issue for currency trading. Nevertheless, with markets focused on whether or not the fed should engage in more QE, a lower than expected figure could be slightly dollar negative.

Report by Alistair Cotton

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US Payroll Data Eases Labor Day Celebrations


 

6, September, 2010

Today is Labour Day in the US and in Canada which means very little work will be done anywhere.

Going back to Friday, the stripped out version of the non-farm payrolls figure produced much stronger numbers than had been anticipated. The market now feels that removing the seasonally volatile short-term Government hirings gives a much more relevant picture of the employment situation.

Accordingly, August private payrolls were reported to have grown by 67,000 (against the consensus figure of 40,000) whilst the July number was revised up from the previously reported -131,000 to -54,000. Economists quickly concluded that, although the US economy continues to face problems ahead, and that the unemployment rate will likely remain stubbornly high, Friday’s employment report is an important step in the right direction, and should weaken the case for additional quantitative easing on the part of Federal Reserve.

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10th Federal Reserve Open Market Committee Minutes Released


 

1, September, 2010

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The highlight overnight was the release of the minutes from the August 10th Federal Reserve Open Market Committee meeting. Some Federal Reserve officials were concerned that a decision to keep securities holdings unchanged would inadvertently signal an intention to resume large-scale asset purchases.

Also, a few policy makers said the economic effects of the decision “would be quite small,” but at the same time, some officials saw “increased downside risks to the outlook for both growth and inflation” and voiced concern that further shocks would cause “significant slowing in growth”.

The debate shows the challenge Fed Chairman Ben S. Bernanke may face in achieving consensus for any additional monetary stimulus to reverse a slowdown in growth and reduce joblessness more quickly. In a speech last week, Bernanke said “Policy makers haven’t agreed on specific criteria or triggers for further action”.


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Gold Market Shines As Dow, S&P And Nasdaq Fall


 

27, August 2010

Global markets are in the doldrums and with decreased trading volumes and a lack of positive data there has been little to prevent a downward path this week. The Dow is down 2.23% on the week and just over 6% on the month, slipping below the critical 10,000 level (closing yesterday at 9,985). S&P 500 and Nasdaq have followed suit heading into the end of the month 6.7% and 6% down on the month.

In the UK the FTSE clawed back from the 6 week low of 5070 seen on Wednesday but is still 3.50% down on the month. In Asia, the Nikkei and Hang Seng haven’t bucked the global trend also down 5.5% and 2% on the month.

Yesterday the Labor Department in the States reported a reduction in new U.S claims for unemployment benefits. Initial claims for state unemployment benefits fell 31,000 to a seasonally adjusted 473,000, below market expectations for a drop to 490,000.

However this figure did little to support the dollar as firstly the claimant’s number still remains high and there is still a real concern about the recovery of the States after the horrendous week it has had. Many economists also look at the four week average price of initial claims which is viewed as a better gauge of employment trends; this figure was up slightly by 3,250 from 486,750.

Despite the onslaught of poor data Germany continues to shine as German consumer morale increased for the third month running, hitting its highest level since last October. German CPI data is also due out this morning and if it follows the positive trend we may seen the reading come out ahead of expectations however seasonal trends suggest August CPI readings are usually low.

In Euro trading news, money supply growth held steady in July as loans to the private sector steepened. The Conference Board’s leading economic index for the Eurozone (which is used to identify turning points in the business cycle of the Euro Zone) rose by 1% to 112.5 in July. The European Central bank reported loans to the private sector grew at a annual rate of 0.9% up from 0.5% rise in June.

Today should be an interesting day with GDP readings from the UK and US coupled with Bernanke speaking this afternoon. UK GDP Q2 2nd release is expected to be unchanged at 1.1% and US GDP Q2 2nd release is expected to be revised down slightly to 1.3%. This afternoon all eyes will turn to Bernanke who is speaking at a conference at 3pm (GMT) at the Economic Symposium in Jackson Hole, Kansas.

It is anticipated that Bernanke will revise down the US 2nd quarter economic growth figure at this annual conference. The recent flow of disappointing data from the States has fuelled fears of a double dip recession. Finally, the gold market news: Gold has edged higher this week to current levels of 1236 per ounce (Gold has surged this month as investors seek safe havens and is up 4.80% on the month).

Report by Philip Ryan

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Euro Trading News: Euro Falling Against The Dollar


 

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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