Currency Market Update 28/09/10

[PhilBen]

Limited data releases yesterday saw markets looking elsewhere for direction although comments from the IMF helped to buoy the Pound yesterday. The IMF appeared to support the coalitions’ Fiscal policy and the intention to half the deficit in 5 years stating it “greatly reduces the risk of a costly loss of confidence in fiscal sustainability and will help rebalance the economy”.
The Euro retreated from 5 month highs against the U.S. Dollar after renewed concerns over the state of its banking sector. This was highlighted after the decision from Moody’s to downgrade the debt rating of Anglo Irish Bank. The Euro finished the day down against both the U.S. Dollar and the Yen.
Reports that the Federal Reserve were considering a more open ended and less aggressive policy regarding quantitative easing allowed the dollar to stabilise against the Yen. The Dollar’s stabilisation against the Yen is perhaps linked to the fact that markets are already pricing in some kind of intervention from the Bank of Japan, tempering any likely gains in the short term.
The Australian Dollar again moved towards parity with the dollar. The economy continues to grow fuelled in no small part by a boom in the mining sector and markets are currently pricing in a potential 25 basis point interest rate hike this week that would bring rate to 4.75% in Australia. Higher rates would provide an increasingly favourable interest rate differential advantage to the Aussie.

This morning saw the release of German GfK consumer sentiment survey. The forward looking report predicted that German confidence will rise in October to its highest level since 2008 and has seen the Euro fall as investors appear to take profit on the back of this encouraging news.
Today we await U.K. GDP and current account figures whilst in the United States Richmond Fed services index and consumer confidence figures are released this afternoon.


Live IB rates at 10.00 am UK
GBP – EURO 1.179
GBP - USD 1.582
GBP- AUD 1.649
EURO - USD 1.34

 

[PhilBen]

The U.S. Dollar fell to fresh lows yesterday after positive European and U.K. economic data. German Gfk consumer confidence rose to 4.9 in October from 4.1 the previous month and while the figures were not initially supportive they combined later in the trading day with comment from a senior official at the European Central Bank to support the Euro. The ECB official commented that some of the central bank’s emergency support may be withdrawn which is significant as loan repayments to the ECB by commercial banks are due tomorrow.

Sterling appreciated across the board after the release of U.K. GDP Q2 final results, growth figures in Britain remained unrevised at 1.2% for the second quarter. The U.K. current account data surprised markets showing a lower deficit in Q2, £7.38bln against an expected increased to £9.75bln from the previous £9.63bln. Sustained growth levels and a reduced deficit eased market concerns over weaker economic conditions and how the pending government spending cuts would impact the economy. Stronger CBI distributive trades data further supported the Pound.

Yesterday’s afternoon session saw a reversal of fortunes for the Pound as comments from Bank of England MPC member Posen pulled the pound sharply lower. Posen was the first MPC member to openly call for more stimulus to be introduced, putting him at loggerheads with Andrew Sentance who has been calling for tighter monetary policy. Markets priced in the possibility of an increase in the £200bln asset purchase scheme going forward although many believe it is unlikely that the majority of the MPC will side with either Posen or Sentance.
U.S. consumer confidence and the Richmond Fed activity index both came out to the downside which pulled the greenback lower across most major currencies; the weaker data supports the argument for greater stimulus to be introduced by the Federal Reserve Bank.

Today an early morning technical rally on dollar weakness has given the greenback a boost. Analysts await the release of U.K. mortgage approvals, BoE consumer credit and European economic sentiment figures this morning while in the U.S. mortgage data is scheduled to release later today.

Live IB rates at 9.36 am UK
GBP – EURO 1.162
GBP - USD 1.5807
GBP- AUD 1.629
EURO - USD 1.358

 

[PhilBen]

Sterling continues to struggle across the majors as weaker economic data from the last few days and comments from Bank of England member Posen increased speculation of possible liquidity boosts in the U.K. and a worsening economic outlook. Investor currency flows depreciated the Pound sharply against the Euro, investors were caught off guard by new long Euro orders and a readjustment in positions following the completion of the E.U. rebate contributions to U.K. farmers were completed. An underlying dovish sentiment towards the Pound has kept the currency trading to the downside as markets remain uncertain over the release of U.K. PMI manufacturing data scheduled for today.

Stronger U.S. economic data triggered profit-taking on previous Dollar losses, initial jobless claims w/w decreased more than expected while the Chicago Fed region showed an increase in manufacturing activity for September. The data eased investor fears that the Fed would come under increased pressure for immediate action on further stimulus.

The Euro is trading lower this morning giving up some of yesterday’s gains after German data came out lower than expected this morning. Retail sales for the month of August fell -0.2% against an expected increase. German PMI manufacturing data also came out to the downside at 55.1 versus 55.3 the previous month.
Markets await the release of U.K. PMI manufacturing and E.U. unemployment data to be released later this morning while in the U.S. construction spending and ISM manufacturing data is scheduled for release.

Live IB rates at 11.53 am UK
GBP – EURO 1.1526
GBP - USD 1.583
GBP- AUD 1.628
EURO - USD 1.373

 

[PhilBen]

The pound rose marginally across the exchanges yesterday as a number of market factors supported the British currency. PMI construction index in the U.K. rose to 53.8 in September from 52.1 for August and U.K. Chancellor George Osborne delivered further details of the government’s austerity plans. Osborne said child benefits to higher earners would be cuts and said that Britain was out of the “financial danger zone” but needed to stick to its plans to cut the budget deficit. Markets also trimmed long euro positions, aiding sterling gains, as Middle Eastern banks triggered sell orders on the dollar in particular.

Pressure on the euro came as peripheral pressures returned and economic data remained neutral. E.U. PPI y/y for August came out in line with expectation at 0.1% while announcements from Ireland and Greece again raised concerns over economic stability. Ireland’s central bank stated yesterday its economy will crawl to a virtual halt this year and Greece released its draft budget that showed a downgrade in growth forecasts for next year, growth is expected to contract 2.6% in 2011 which will mean the Greek economy would stay in a recession for the 3rd straight year.

Japan surprised markets by cutting interest rates to zero overnight and pledged it would keep rates at zero until prices are seen as stable. The Yen has weakened slightly but speculative demand means weakness remains limited.

This morning comments from the ECB regarding China’s support for a stable euro has pushed the single currency higher with Trichet saying he appreciated China’s declaration of confidence in E.U. treasuries. German PMI services data rose to 54.9, up from 54.6 and has allowing the euro to maintain its upward trend.

Markets await the release of U.K. PMI services data and E.U. retail sales figures later this morning, in the U.S. ISM non-manufacturing data is scheduled for release later today.


Live IB rates at 9.42 am UK
GBP – EURO 1.153
GBP - USD 1.589
GBP- AUD 1.654
EURO - USD 1.378

 

[PhilBen]

The Pound continued to weaken yesterday as a lack of economic data and anticipation of a dovish Bank of England today kept traders cautious and saw Sterling trade along wider market movements. The Euro continued to advance although it succumbed to some profit-taking after E.U. GDP Q2 revision remained unchanged at 1.0% q/q, weakening across the board. The single currency quickly recovered its composure though as German industrial orders rose sharply for the month of August coming out at 3.4% which was well above the 0.8% economists had forecast.
U.S. economic weakness is still the main driving force behind currency movements and once again this was proven after a poor ADP employment report pulled the Dollar sharply lower and allowed the Euro to break a the key 1.39 technical levels and sustain these overnight. U.S. ADP employment showed the private sector shedding 39,000 jobs in September, the figures were made worse by upward revisions to the previous release.

Halifax house price figures this morning has pushed the Pound to new lows versus the Euro although EUR/USD levels are keeping cable range bound. House prices fell to -3.6% in September, analysts had expected a -0.2% figure and August numbers were revised higher adding further pressure to the Pound. Ahead of the all important Bank of England and European Central Bank rate decisions markets await the release of U.K. and German industrial output data, U.K. data is expected to come out to the downside while German figures are forecasted to improve.
For the United States only weekly jobless claims figures are scheduled for release but after a weak ADP report the data could have more of an impact than normal as markets prepare for tomorrows Non-farm payrolls data.


Live IB rates at 11.35 am UK
GBP – EURO 1.1403
GBP - USD 1.593
GBP- AUD 1.609
EURO - USD 1.396

 

[PhilBen]

After initially depreciating further yesterday, after lower Halifax housing data, the Pound rallied when the release of U.K. manufacturing and industrial output figures beat market expectation.

Manufacturing output rose 6% against a forecast of 5.8% y/y in August while industrial output in the U.K. came out in line with the expected 4.2% but was significantly better than the previous 1.9% posted in July. The data set the Pound on a gradual upward trend ahead of the Bank of England rate decision.

The BoE kept rates unchanged at 0.5%, as expected. There was some uncertainty over the central bank's asset purchase scheme but no changes were made to the £200bln program which pushed the Pound sharply higher as some traders had priced in the possibility of a surprise cash injection by the bank. Advances by the Pound were capped though as the possibility of further quantitative easing in the future still remains.
The Euro's recent rally, which saw it gain 6% in value against the Dollar, stalled yesterday. The single currency remained well supported during the morning session as German industrial output came out higher at 1.7% versus an expected 0.5% rise in August. The European Central Bank added its weight to the rally leaving interest rates unchanged at 1.0%, as expected. The follow up press conference saw the ECB President Trichet hold firm in the banks position. Trichet expressed some concern over economic uncertainty and criticised the euro speculative strength but reaffirmed the central banks position on maintaining price stability.
On growth, the ECB saw risks being slightly to the downside as global uncertainty remains, but the overall economic assessment remained unchanged. The Euro rose to above 1.40 versus the Dollar, aiding the Pound in breaking briefly above 1.60, before profit-taking on the anticipation of today's U.S. Non-farm payrolls saw the Dollar close at the highs of the day.

Mixed German data has had a variable impact on the Euro this morning. The German trade surplus dropped to 11.7bln but imports rose more than expected boosting investor confidence as many economists feel traditional export economies needs to raise import to help support global economic recovery.
Markets await the release of U.K. PPI data this morning but the main event today will be the U.S. Non-farm payrolls report.

Live IB rates at 10.25 am UK
GBP - EURO 1.139
GBP - USD 1.586
GBP- AUD 1.625
EURO - USD 1.391