The US dollar strengthened over the pound by 0.76 cents yesterday to close the day at the 1.4768 level, as fading optimism about the recovery of the global economy saw stocks fall across the world. Falling equities promoted risk aversion and saw investors buy the greenback as a safe haven. The pound is particularly sensitive to equity market moves and had strengthened to 1.4958 earlier in the session.
In today’s trading the dollar has continued to strengthen over the pound, although some of its gains have been pared after reaching as low as 1.4641. Later today industrial production and manufacturing production data is released in the UK as well as Nationwide consumer confidence figures and the NIESR GBP Estimate. In the US, data from the ABC/Washington Post Consumer Confidence index is released.
Tuesday 7 April 2009
US dollar strengthens as equity markets slip
The dollar strengthened against most major currencies yesterday as European and US markets retreated ahead of the first-quarter reporting season, with the Dow Jones falling 155 points. Other significant news included the announcement that IBM Corp had decided not to go ahead with the planned takeover of Sun Microsystems Inc.
Data out in the eurozone which showed that retail sales had fallen also contributed to the weakening of the euro. The data showed that sales had fallen 4% from the year before, much more than analysts had predicted. Last week the ECB cut interest rates by 0.25%, less than the anticipated 0.5% and the G20 meeting concluded with the announcement that there will be $1 trillion provided in aid to revive the global economy. This resulted in an increase in investors’ risk appetite, thus diminishing the appeal of the dollar. However, the boost in the euro against the dollar seems to have been short-lived.
Gross Domestic Product figures are due from the eurozone today, while Consumer Credit and Consumer Confidence figures will be released in the US this afternoon.
Data out in the eurozone which showed that retail sales had fallen also contributed to the weakening of the euro. The data showed that sales had fallen 4% from the year before, much more than analysts had predicted. Last week the ECB cut interest rates by 0.25%, less than the anticipated 0.5% and the G20 meeting concluded with the announcement that there will be $1 trillion provided in aid to revive the global economy. This resulted in an increase in investors’ risk appetite, thus diminishing the appeal of the dollar. However, the boost in the euro against the dollar seems to have been short-lived.
Gross Domestic Product figures are due from the eurozone today, while Consumer Credit and Consumer Confidence figures will be released in the US this afternoon.
Quiet day for sterling / euro
Yesterday proved to be a quiet day for GBP / EUR trading as the Institute of Fiscal Studies warned that Chancellor Alistair Darling will have to double his fiscal tightening efforts in a bid to bring public borrowing under control. The Institute warned that an extra £39bn a year would be needed to bring recent expenditures under control, with the Budget due in just over two weeks on 22nd April. It was also revealed that new car sales were 30.5% lower last month than a year ago, as the gloom deepened further within the car industry. Any optimism lingering from the G20 meeting last week soon evaporated and the FTSE 100 ended the day 1% lower as investors became risk averse, with sterling coming under selling pressure.
The Bank of England’s interest rate decision looms on Thursday, with the Caxton FX analysts anticipating that rates will be kept on hold following a swathe of cuts in the past 6 months. The policymakers are also expected to see how the recently implemented quantitative easing programme is affecting the markets.
Today, investors will take note of industrial and manufacturing details released in the UK, with final fourth quarter GDP figures released within the eurozone this morning.
The Bank of England’s interest rate decision looms on Thursday, with the Caxton FX analysts anticipating that rates will be kept on hold following a swathe of cuts in the past 6 months. The policymakers are also expected to see how the recently implemented quantitative easing programme is affecting the markets.
Today, investors will take note of industrial and manufacturing details released in the UK, with final fourth quarter GDP figures released within the eurozone this morning.
New Zealand dollar's recovery halted
The New Zealand dollar’s recent recovery halted overnight as global equity markets fell, causing growing investor risk appetite to stall. In the last week the G20’s attempt to revive the global economy had caused an upturn in equity markets, helping demand for riskier assets and high yielding currencies. Most analysts believe it is still too early to tell whether this is the start of a recovery for the kiwi. In the meantime direction will still mainly come from broader market themes.
Reserve Bank of Australia cuts rates
The Australian dollar remained within recent ranges against sterling yesterday, in a choppy day of trading which saw global equity prices fall. Little domestic data was released from either country yesterday, providing no further impetus. However, overnight the Reserve Bank of Australia cut domestic interest rates by 0.25%, and the aussie dollar strengthened following the announcement, as the central bank indicated that any further rate cuts were likely to be modest.
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