Currency Market News – Euro Remains High Against Dollar

With no positive news expected from the G20 meeting, the euro should remain high against the dollar for the present. Euro may be on the point of becoming a sell against the sterling despite this weeks poor data out of the UK.

22 October 2010

A day of little action yesterday with attention focused on the G20 meeting in South Korea. The Dollar did soften during the European trading day, but not on anything tangible – more on speculation of an impasse on the G20 discussions rather than fundamentals or economic news. Sterling did not fare well however with continued concern over the UK economic outlook.

Today, we are not scheduled to receive any 1st tier economic data from either the UK or the US. This will necessitate traders being left to their own devices for today and accordingly, I find it very unlikely that we will see the Dollar make much headway before the weekend break. Buying the Greenback on an assumption that the G20 participants will be able to come to any agreement on currencies’ values or global economic rebalancing looks a very dangerous strategy and therefore I expect Euro/Dollar to ease back up into the high 1.39s before London’s close.

Remarks made by Tim Geithner, supporting a letter from the US delegation sent to the other nineteen G20 members, gave risk currencies a bit of a bid feel. He said that G20 countries should cap their external imbalances at a particular, though unspecified, share of GDP. It appears that the aim of any such measure would be to force export dependent economies to focus instead on stimulating domestic demand, and this should in theory reduce local objections to currency appreciation.

The US, however, are encountering strong opposition from other nations, specifically those in the Far East towards who, the accusative finger of the US Treasury tends to point. Lack of progress at the G20 meeting will undoubtedly mean a continuation of Quantitative Easing driven markets and a longer term change of sentiment towards the Dollar would only emerge if and or when US data begins to improve or it was deemed that the whole concept of QE was deemed ineffective.

Today’s German IFO results were mildly more positive than had been anticipated, but not by enough to trigger any Euro buying. We are therefore left clock watching with the only possible stimulus for rates movement coming from Wall Street opening this afternoon.

Sterling has had a torrid couple of weeks as bad news mounted up which in turn, took its toll on the currency’s international appeal. Opinion however does appear to be shifting, especially versus the Euro, with the thought emerging that Euro/GBP is becoming a sell at these dizzy heights. Recent bad news has been well priced in to Sterling so strategists are looking for some degree of retracement over the coming weeks.

Andrew Sentence, in an interview with The Sun newspaper, reaffirmed his commitment to tighter monetary conditions saying that the recently announced spending cuts would not endanger the economic recovery and although growth patterns will remain uneven, it is inflation that is still the elephant in the room…. no change there then, as far as the MPC’s uber-hawk sees it.

Report by Tim Lewis
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US Dollar Sell Off Continues

Expect a large US dollar sell off this afternoon following the release of the latest US employment figures. Combine this with the anticipated re-introduction of quantitative easing by the FED and the dollar may sink even lower.

08, October 2010

20 years ago today marked Britain’s first day as a full member of the European Exchange Rate Mechanism (ERM), aimed at reducing exchange rate variability and furthering monetary stability in Europe. The ERM was a first step on the road to a single European currency which we now know as the Euro. But as we all remember, the experiment did not end well for Britain. Speculators including George Soros famously made a killing betting against the Pound and the downward pressure on Sterling first prompted interest rate hikes and finally Britain to formally pull out of the system.

The lesson the Bank of England learned that day was that no longer could a Central Bank of a small island hold back the tide (or should that be Tsunami) of the market. Although we now live in a world of floating rather than fixed exchange rates, informal Dollar pegs by many developing nations are still used to manage exchange rates.

The sharp Dollar sell off over the past month leaves these nations in somewhat of a pickle. To maintain international competitiveness they must buy Dollars and sell their own currency to maintain the desired rate of exchange, but the whole market seems poised to short Dollars as soon as the Federal Reserve announces a resumption of quantitative easing. Direct intervention may work in the short term (as witnessed by the spike in USDJPY after the intervention by the Japanese) but it is a futile and expensive policy if the market thinks otherwise.

Today’s US employment figures are seen a key barometer for a resumption of QE, so expect frothy trading this morning in the build up. The estimate is for a loss of 5K, with a larger decline almost certain to lead of Dollar sell of this afternoon. The Dollar Yen pair is approaching levels once again when the Japanese may be forced to intervene and may do so over the weekend before European and American markets open, for maximum effect.

Both the ECB and BOE kept rates on hold yesterday at 0.5% with no changes to asset purchase schemes. British house prices dropped 3.6% in September, one of the largest monthly falls on record, but such is the way as the moment Sterling shrugged this off and pushed over 1.60 in cable in the early afternoon. Positive manufacturing data may have helped in the move higher but further Dollar weakness was the main driver.

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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USD Shines After Positive Minutes

Currency Market News on UK and US Interest Rates and The Beleaguered Euro

18, February 2010

Yesterday the markets digested the minutes of the February interest rate meetings for both the UK and the US. Firstly looking at the UK the vote was a unanimous 9-0 to keep interest rates on hold and also to hold Quantitative Easing at £200 billion.

The feedback from the MPC was ambiguous in the sense that the decision was unanimous and yet the comments were that it was a “finely balanced” decision to keep QE on hold. The unanimous decision gave sterling a boost which was then tempered by weaker than expected employment numbers. Going forward this does not change the sentiment for sterling which will struggle to appreciate until the outlook for the UK warrants a more hawkish approach from the MPC.

Over to the US and the FOMC upgraded their forecasts for the US economy reflecting a more bullish tone from the Fed. They also discussed trying to shrink their reserves over time although no time frame was announced to do this. The positive tone from the Fed with improved economic sentiment in the US coupled with loitering fear in the markets helped to push the USD higher. Japan as expected voted to keep their key overnight rate at 0.1% – no real surprises in the accompanying statement.

The main focus for the currency markets still surrounds the beleaguered euro which is threatening to fall below 1.35 against the USD risking further selling pressure for the single currency. Today data from the UK’s public finances was not pretty and is a further reminder that the UK needs to get its act together…sterling fell on the news unsurprisingly.

Report by Phil McHugh

Currency Market Updates by Tom Nadir

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UK Unemployment Rises Again

Currency Market News on UK Jobless Figures, EU Anger at Greece and Market Movement

17, February 2010

Jobless claims were up 23,500 against the expectation of a fall of 10,000 so not good feedback for the employment sector. This data for January was disappointing but not wholly unexpected and simply reinforces the fact that the employment sector remains very sluggish.

Although we may have officially exited the recession on paper the reality is that we still have a long a painful road ahead.

The official unemployment rate remains at 7.8%. In addition to the employment data we also had the minutes from the February interest rate meeting for the UK. The Bank Of England minutes came in 9-0 as expected to keep interest rates and Quantitive Easing (QE) on hold. Although all members voted to leave the size of the asset purchase programme unchanged,it was noted that some members felt the arguments for a further increase were “finely balanced”. This underlies the uncertainty within the MPC on the future impact of the £200 billion already introduced and therefore the MPC will not close the door on further QE if required.

Sterling is likely to remain subdued as the BoE feel that inflation will fall further in 2010 and further expansion of QE is a weapon that they will use again if necessary.

Back to Greece and yesterday it was agreed to give the government time to co-ordinate their future policy on their budget. However there was a clear tone of anger from the EU for the shocking handling of their finances to date and they have until the end of March to come up with some answers. The EU also stripped Greece of its voting rights at next months meeting in an attempt to demonstrate their anger towards Greece.

So although no firm agenda or plan in place the markets have started to feel more comfortable or possibly bored with the affairs in Greece and investors once again started to dip their toes in again. The USD and the JPY weakened in line with a tentative return to risk. GBP/USD pushed back through 1.57 and tested 1.58 in early trading and EUR/USD pushed through 1.37.

Report by Phil McHugh

Currency Market Updates by Tom Nadir

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

The contents of this report are for information purposes only.

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