Dollar strengthens over yen, weakens against euro

The Federal Reserve Chairman Ben Bernanke warned the Senate Banking Committee today that unless government efforts succeeded in restoring financial stability, the US recession may not end this year. Furthermore, US figures showed that consumer confidence fell to a record low in February and houses prices fell at a record pace in December.

These announcements had the effect of spreading risk aversion and encouraging investors to sell the Japanese yen and buy the US dollar. Demand for the greenback as a safe haven saw it hit a 3 month high over yen. The yen was also undermined as investors remain worried about its struggling economy and the lack of a convincing plan to aid it. As such it's safe haven status continues to be eroded.

USDJPY: 1 week chart. Click on graph to enlarge.

Against the euro this poor news actually saw the dollar weaken despite news from the eurozone that industrial new orders (the value of new contracts for goods in the manufacturing sector) fell by 22.3% in the last year.

EURUSD: Today's trading. Click on graph to enlarge.

Close of business exchange rates

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Sterling weakens on poor data and risk aversion

Sterling has traded lower against a whole basket of currencies today after risk aversion saw investors sell the risky pound and seek safer positions. In the US, Fed Chairman Ben Bernanke warned that unless government efforts succeeded in restoring financial stability, the US recession may not end this year. Furthermore, US figures showed that consumer confidence fell to a record low in February and houses prices fell at a record pace in December.

Poor British data has further undermined sterling's position as British business investment fell at it's steepest rate since 1991 (-7.7% for 2008) and the British Bankers' Association reported that mortgage approvals fell 43% in the year to January.

Tomorrow Caxton will post on quantitative easing, a tool it seems ever more likely the Bank of England will utilise to stimulate the economy and combat deflation.

GBPEUR: Today's trading. Click on the graph to enlarge.

GBPUSD: Today's trading. Click on the graph to enlarge.

Midday exchange rates

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Pound struggles to hold ground against euro

The pound enjoyed a successful day against the euro yesterday, following a rallying FTSE 100 early in the morning. This created demand for higher risk currencies, with sterling being the main beneficiary. In addition, the single currency was hurt after the President of the European Central Bank, Jean-Claude Trichet, highlighted the strains the financial system is facing in the eurozone and the spillover affect this is having on the economy.

The market will take particular note in the IFO’s business climate and expectations survey released in Germany this morning, and mortgage approvals and business investment figures in the UK. However the pound has already given up some of yesterday's gains.

GBPEUR: 1 week chart. Please click on graph to enlarge.

Pound continues to perform well against dollar

The pound continued to strengthen against the US dollar overnight, as riskier currencies benefited from stronger equity markets amid tentative optimism about the US government's plan to take stakes in struggling financial institutions.

However, the pound’s momentum has begun to peter out this morning, as investor optimism is starting to wane on renewed concern about the deteriorating economic climate in Europe and Japan.

The Confederation of British Industry's distributive trades survey is due at 11.00 GMT today, while the house price index and consumer confidence figures are released in the US this afternoon.

GBPUSD: 1 week chart. Please click on chart to enlarge.

Dollar struggles to post gains on talk of European banking woes

The US dollar strengthened over the euro by 1.27 cents yesterday to close the day at 1.2690. However, early in the day's trading the euro had shown good strength and reached a high of 1.2990 off news that the US government may take up to a 40% stake in Citigroup. Analysts took this as a suggestion that the US government would not allow another bank to fail and consequently improved risk appetite amongst investors saw demand for the dollar as a safe haven fall. However, in later trading comments from ECB President Trichet about the severe pressure that European banks now find themselves under saw the euro heavily sold. This was compounded by news that ratings agency Fitch was concerned about Austria's AAA credit rating.

In today's trading the euro has strengthened back against the dollar despite the announcement of slightly worse than expected German IFO Business Climate and Expectations data, which are business sentiment indices. Later today eurozone Industrial New Orders figures are released, whilst in the US the Richmond Fed Manufacturing Index, ABC/Washington Post Consumer Confidence survey and S&P/Case-Shiller Home Price Index are all announced as well as a speech from Fed Chairman Ben Bernanke.

EURUSD: 1 week chart. Please click on graph to enlarge.

Sterling performs modestly against Aussie dollar

The Australian dollar weakened against sterling over the weekend, after comments from US senate banking committee chairman Christopher Dodd that it may be necessary to nationalise some US banks for a short period. This fuelled growing uncertainty over some of the world’s largest banks, and coupled with an already grim economic outlook kept investor risk aversion high. Meanwhile data on Friday revealed an unexpected rise in British retail sales for January compared with the previous month, as shoppers took advantage of post Christmas sales. Although this provided some support for the pound it was largely overshadowed by downbeat European data, which is likely to continue to be a drag on the UK economy.

In this morning's trading the Aussie dollar has in fact strengthened back over a weakening pound.

GBPAUD: 1 week chart. Please click on chart to enlarge.

Kiwi dollar remains under pressure

The New Zealand dollar generally remained weaker yesterday after initial optimism was reversed later in the day. With little domestic data released the kiwi was largely directed by the movements of equity markets, which are being used as a barometer of risk aversion.

However in today's trading the pound has come under pressure and the kiwi dollar has come back somewhat.

GBPNZD: 1 week chart. Please click on graph to enlarge.

Morning exchange rates

Please find an update of the current interbank exchange rates as of 09.25. In the future Caxton will publish these rates before 09.00 each weekday.

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