Currency Market Update 26/07/10

[PhilBen]

Profit-taking on the previous euro gains ended late Friday after the release of the greatly anticipated European banking stress tests. E.U. banks performed well with only 7 minor financial institutions failing the tests and needing to raise capital. The results calmed markets concerns that banks being forced to raise capital could put undue pressure on balance sheets and thus trigger a second round on bank bailouts. The Euro failed to rebound on the back of the test’s publication as analysts were underwhelmed by the results. Many felt the tests were not strict enough due to the fact that it assumed there would be no chance of sovereign defaults and thus did not show the financial sectors exposure to sovereign debt.
U.K. Hometrack housing data came out slightly weaker than previous, prices dropped y/y to 2% in Jul from 2.1% previously. Equity markets are trading higher this morning pushed higher by a relief rally in banking stocks and, despite the slightly weaker housing data, the Pound remains supported.
There is no local or European data scheduled for today and in the U.S. only new home sales figures are expected. Equity markets and confidence trading are likely to dictate market direction.

Live IB rates at 9.48 am UK
GBP – EURO 1.199
GBP - USD 1.548
GBP- AUD 1.725
EURO - USD 1.29

[PhilBen]

Hometrack housing data placed the Pound on the back foot yesterday and with a lack of further economic data Sterling traded at the mercy of wider market movements for the remainder of the day. The stress test results continued to affect Euro trade as investor confidence remained well supported by the data. Some criticism has come from the fact that not all banks disclosed their sovereign debt exposures on Friday. Regulators brushed aside concerns and many of the 7 banks that did not initially disclose their sovereign debt exposures, published their figures yesterday. On balance investor confidence remains high and the single currency maintained an upward trend through the day.
The dollar gained some brief support from better than expected housing data. U.S. new home sales rose to 330K in June, up from May’s 267K release. Equity markets have remained in positive territory and has kept the Dollar range bound overnight.
German GfK consumer confidence rose to 3.9 in August, higher than the 3.5 expected and has given the Euro some early support. There is no further European data scheduled for release and profit-taking on a key technical level in EUR/USD has pulled back Euro gains. There is no U.K. data to be released today whilst in the U.S. consumer confidence data is expected.

Live IB rates at 9.48 am UK
GBP – EURO 1.188
GBP - USD 1.546
GBP- AUD 1.71
EURO - USD 1.30

[PhilBen]

Markets became cautious ahead of the U.S. GDP data on Friday and pushed the Dollar higher as positions set earlier in the week were unwound. Q2 U.S. GDP came out at 2.4% versus an expectation of 2.5% and triggered risk aversion amongst investors who took to buying the Greenback. The data was the strongest indicator so far that economic recovery in the United States was slowing and supported comments from Fed Chairman Bernanke who said the Fed was ready to initiate further stimulus if needed. Calm returned to the markets after the release of the Chicago PMI and University of Michigan sentiment index, both beating the consensus forecast.
The Pound continues to appreciate this morning against the Dollar, pushed higher by a surge in equity markets although ranges versus the Euro remains fixed. Markets await the release of German, U.K. and U.S. PMI manufacturing data today, the data is expected to come out neutral and as such equity markets could continue to direct currency trade.


Live IB rates at 9.31 am UK
GBP – EURO 1.208
GBP - USD 1.579
GBP- AUD 1.731
EURO - USD 1.307

[PhilBen]

Sterling strengthened across the board yesterday after the release of better than expected manufacturing and banking earnings figures. PMI manufacturing for the U.K. fell to 57.3 only slightly lower than June’s reading was 57.5 and better than the 57 analysts had expected. The data combined with significantly better earning results from HSBC to boost investor confidence and push the Pound higher. HSBC showed half year profits had more than doubled from a year ago.
The Euro gained some support against the Dollar after German PMI manufacturing data came out in line with expectation and BNP Paribas posted strong earnings figures. The figures were not enough to offset the optimism seen in Sterling. Data in the U.S. continues to point towards an ever slowing economy and ISM manufacturing figures, while better than expected, maintained this data trend. The Dollar weakened on the back of the release as investors look to other global economies to stability in their investments.
There is no local data scheduled for release today. In the E.U. await the release of PPI data while in the U.S. durable goods, factoring orders and pending homes sales figures are expected.


Live IB rates at 10.12 am UK
GBP – EURO 1.202
GBP - USD 1.591
GBP- AUD 1.745
EURO - USD 1.322