In a scheduled announcement, the European Central Bank has cut their interest rate by 0.25% to set a new historic low of 1.00%. It was widely anticipated interest rates would be cut, as the central bank attempts to boost the eurozone economies in the face of the global economic slowdown. Indeed, recent forecasts released by the European Commission on Monday revealed that the region’s economy would shrink by 4% this year, more than double the contraction projected in January, and a further contraction of 0.1% in 2010.
We await any comment regarding quantitative easing within the eurozone as the President of the European Central Bank, Jean-Claude Trichet, is scheduled to make a speech shortly. Trichet has already indicated that the central bank could resort to purchasing assets with newly created money – similar to what is being seen in the UK and US at present. With falling interest rates and with quantitative easing on the cards, Caxton FX is expecting that the single currency may come under increased selling pressure in the coming months.
Thursday 7 May 2009
Bank of England keep interest rates on hold at 0.5%
In a scheduled announcement, the Bank of England has kept interest rates on hold at 0.5%. The central bank was widely expected to keep interest rates on hold following their unprecedented monetary easing since October last year. Despite the base rate remaining at a historic low, and a quantitative easing strategy already being deployed, credit conditions remain tight in the UK for business’s and individuals alike. We expect that the Bank of England will have used up the initial £75bn of new money by the end of this month and will begin the process of using the additional £75bn limit agreed by chancellor Alistair Darling.
We expect the pound to trade within a narrow range initially, as investors turn their attention to the European Central Bank’s interest rate decision due in approximately 45 minutes. In the longer term the Caxton FX analysts feel that the pound may gain some value against the single currency as economic news remains particularly soft in the eurozone. In addition, the European Central Bank has been slower with their interest rate cuts, and are expected to turn to more unconventional measures such as those currently being employed in the US and the UK.
We expect the pound to trade within a narrow range initially, as investors turn their attention to the European Central Bank’s interest rate decision due in approximately 45 minutes. In the longer term the Caxton FX analysts feel that the pound may gain some value against the single currency as economic news remains particularly soft in the eurozone. In addition, the European Central Bank has been slower with their interest rate cuts, and are expected to turn to more unconventional measures such as those currently being employed in the US and the UK.
Sterling continues march over weaker euro
The pound strengthened against the euro yesterday as continued strength on London equity markets improved investor sentiment that the UK may tentatively be coming out of recession. The FTSE 100 finished the day up 59.55 points yesterday at 4,396.49. In early trading, the euro strengthened slightly against the pound after better-than-expected Purchasing Managers’ index data released in the eurozone bolstered investor hopes that an economic recovery in the region may not be too far off. The index unexpectedly rose to 43.8 in April up from 43.1 the previous month. However, the single currency’s gains against the pound were capped to some extent following the release of weaker-than-expected Retail Sales data in the region. March’s Year-on-Year sales figures fell by 4.2%, down from -2.6% in February, whilst the Month-on-Month figure came in at -0.6%, markedly lower than the 0.1% increase analysts had predicted.
The euro’s gains were also capped yesterday by increased market speculation ahead of the European Central Bank and Bank of England’s interest rate decisions, announced later today. Most analysts are now agreed the ECB will cut its key rate by 25 basis points to 1%, however whether it will also adopt a quantitative easing program like the US Fed remains to be seen. This uncertainty weighed on the euro’s earlier gains against sterling, although the pound was unable to go into positive territory against the single currency because of investor speculation surrounding its own central bank, the Bank of England, who may announce an extension of its own quantitative easing program beyond the current £75 billion later today. In addition, better-than-expected data released by CIPS/Markit showed the UK service sector contracted in April at its slowest rate in eight months. April’s reading of 48.7 was the highest since August 2008 and was well ahead of the 46 analysts had predicted. Despite this, the euro went into lunch slightly up against the pound, with improved risk sentiment in the eurozone spurring its gains.
However, in the afternoon continued strength in London equities lifted the pound into positive territory against the euro, with retailers Next and the Co-operative Group both gaining ground after posting solid profits. The pound’s gains were also aided by increased investor wariness ahead of the ECB’s interest rate announcement later today, with some speculating that the central bank may be “behind-the-curve” in terms of stimulating the eurozone out of recession should they only now announce quantitative easing. As a result, investors sold the single currency in late trading yesterday, looking instead to what some perceive to be an undervalued pound. As a result, sterling finished the day up at 1.1348.
In early trading today the pound has continued its rise against the euro, following news that Barclays have posted a £1.37bn pre-tax profit for the first three months of 2009, further improving investor confidence in the UK’s chances of recovery. There are some very important announcements out on both sides of the English Channel today. In the eurozone, German Year-on-Year and Month-on-Month Factory Orders for March are out at 11.00 BST, whilst at 12.45 BST the ECB will announce its interest rate decision. Finally, ECB President Jean-Claude Trichet is due to give a speech at 13.30 BST. In the UK, the Bank of England’s interest rate decision is due at 12.00 BST.
The euro’s gains were also capped yesterday by increased market speculation ahead of the European Central Bank and Bank of England’s interest rate decisions, announced later today. Most analysts are now agreed the ECB will cut its key rate by 25 basis points to 1%, however whether it will also adopt a quantitative easing program like the US Fed remains to be seen. This uncertainty weighed on the euro’s earlier gains against sterling, although the pound was unable to go into positive territory against the single currency because of investor speculation surrounding its own central bank, the Bank of England, who may announce an extension of its own quantitative easing program beyond the current £75 billion later today. In addition, better-than-expected data released by CIPS/Markit showed the UK service sector contracted in April at its slowest rate in eight months. April’s reading of 48.7 was the highest since August 2008 and was well ahead of the 46 analysts had predicted. Despite this, the euro went into lunch slightly up against the pound, with improved risk sentiment in the eurozone spurring its gains.
However, in the afternoon continued strength in London equities lifted the pound into positive territory against the euro, with retailers Next and the Co-operative Group both gaining ground after posting solid profits. The pound’s gains were also aided by increased investor wariness ahead of the ECB’s interest rate announcement later today, with some speculating that the central bank may be “behind-the-curve” in terms of stimulating the eurozone out of recession should they only now announce quantitative easing. As a result, investors sold the single currency in late trading yesterday, looking instead to what some perceive to be an undervalued pound. As a result, sterling finished the day up at 1.1348.
In early trading today the pound has continued its rise against the euro, following news that Barclays have posted a £1.37bn pre-tax profit for the first three months of 2009, further improving investor confidence in the UK’s chances of recovery. There are some very important announcements out on both sides of the English Channel today. In the eurozone, German Year-on-Year and Month-on-Month Factory Orders for March are out at 11.00 BST, whilst at 12.45 BST the ECB will announce its interest rate decision. Finally, ECB President Jean-Claude Trichet is due to give a speech at 13.30 BST. In the UK, the Bank of England’s interest rate decision is due at 12.00 BST.
Cable continues to rise
The pound continued its rise against the US dollar yesterday as some stronger-than-forecast data released on both sides of the Atlantic improved risk sentiment. In early trading, sterling strengthened against the dollar after better-than-expected UK service sector data bolstered investor appetite for risk. The most recent CIPS/Markit survey showed the pace at which the UK’s service sector contracted fell to its slowest rate in eight months. April’s reading of 48.7, up from 45.5 the previous month, was the highest figure since August 2008 and the biggest rise in the index since April 1999. Although still below the 50 points level, and therefore a contraction rather than an expansion, the reading was still well ahead of analysts’ predictions for a more moderate improvement to 46 points.
However, increased speculation surrounding the results of US government “stress tests” on nineteen American banks capped sterling’s gains yesterday, particularly after reports surfaced that the largest US bank, Bank of America, would need an extra $34 billion should the recession take a turn for the worse. It is thought that Wells Fargo and Citigroup will also need to strengthen their balance sheets considerably. The formal results of the tests will be released at some point today. Also weighing on sterling’s gains against the greenback yesterday was uncertainty in the market over what the Bank of England will decide at their policy meeting later today. Most analysts are agreed that the bank will not move interest rates from the current 0.5%, but what is less clear is whether it intends to extend its quantitative easing program beyond the current £75 billion. As a result, some investors shied away from the perceived “riskier” pound, preferring instead to keep their capital in the perceived safe-haven of the US dollar. Nevertheless, the pound was slightly up against the greenback by yesterday lunch.
Early yesterday afternoon, sterling extended its gains against the dollar after much stronger-than-forecast US ADP Employment Change data was released to the market. April’s figure of -491k was far ahead of the -644k analysts had predicted and also a marked improvement on March’s figure of -742k. Investors took the reading as a strong sign the global economy may be on the cusp of a recovery and therefore they started buying into the higher yielding pound. However, sterling’s gains were cut short in late trading yesterday as some traders cashed in on recent gains ahead of the Bank of England’s key monetary policy meeting later today. However, sterling still finished the day up against the greenback at $1.5134.
In early trading today the pound has pared some of yesterday’s gains, as many traders remain unwilling to take aggressive positions ahead of today’s potentially market-moving interest rate decision. The Bank of England will make its announcement at 12.00 BST. In the US, First Quarter Non-Farm Productivity figures are set for release at 13.30 BST, while Fed Chairman Ben Bernanke is due to give a speech at 14.30 BST. The results of US government “stress tests” are also due at some point today.
However, increased speculation surrounding the results of US government “stress tests” on nineteen American banks capped sterling’s gains yesterday, particularly after reports surfaced that the largest US bank, Bank of America, would need an extra $34 billion should the recession take a turn for the worse. It is thought that Wells Fargo and Citigroup will also need to strengthen their balance sheets considerably. The formal results of the tests will be released at some point today. Also weighing on sterling’s gains against the greenback yesterday was uncertainty in the market over what the Bank of England will decide at their policy meeting later today. Most analysts are agreed that the bank will not move interest rates from the current 0.5%, but what is less clear is whether it intends to extend its quantitative easing program beyond the current £75 billion. As a result, some investors shied away from the perceived “riskier” pound, preferring instead to keep their capital in the perceived safe-haven of the US dollar. Nevertheless, the pound was slightly up against the greenback by yesterday lunch.
Early yesterday afternoon, sterling extended its gains against the dollar after much stronger-than-forecast US ADP Employment Change data was released to the market. April’s figure of -491k was far ahead of the -644k analysts had predicted and also a marked improvement on March’s figure of -742k. Investors took the reading as a strong sign the global economy may be on the cusp of a recovery and therefore they started buying into the higher yielding pound. However, sterling’s gains were cut short in late trading yesterday as some traders cashed in on recent gains ahead of the Bank of England’s key monetary policy meeting later today. However, sterling still finished the day up against the greenback at $1.5134.
In early trading today the pound has pared some of yesterday’s gains, as many traders remain unwilling to take aggressive positions ahead of today’s potentially market-moving interest rate decision. The Bank of England will make its announcement at 12.00 BST. In the US, First Quarter Non-Farm Productivity figures are set for release at 13.30 BST, while Fed Chairman Ben Bernanke is due to give a speech at 14.30 BST. The results of US government “stress tests” are also due at some point today.
Little change on EUR/USD
The euro rose slightly against the US dollar yesterday as improved risk appetite continued, however its gains were capped as investors braced themselves for several important announcements due later today. In particular, speculation surrounding the results of US government “stress tests” on nineteen major American banks weighed on investors’ minds, especially after a source close to the tests said Bank of America could require as much as $34 billion in additional capital should the recession take a turn for the worse. According to reports, the ten banks thought to require additional capital will be given one month by the US government to find the necessary cash or be forced to accept a bailout from taxpayers. Markets were also cautious ahead of the European Central Bank’s monetary policy decision due later today, with some analysts predicting the bank may embark on a quantitative easing program similar to that adopted by the US Fed and the Bank of England last year. However, the greenback’s early gains against the single currency were capped to some extent following the release of some better-than-expected data in the eurozone, raising investor hopes that a global recovery may be tentatively underway. The European Monetary Union’s Purchasing Mangers’ Index for services rose unexpectedly in April to record its biggest one-month increase since December 2001, up from 43.1 in March to 43.8. However, a brief rally by the euro was soon halted after worse-than-expected Retail Sales data in the region reduced risk appetite in the market. March’s Month-on-Month sales figures fell by 0.6%, down from -0.3% in February and far worse than the 0.1% increase expected, whilst the Year-on-Year figure came in at -4.2%, far lower than the -2.6% analysts had predicted. This data, together with speculation surrounding the two potentially market-moving announcements due later today, meant the greenback went into lunch up against the single currency.
However, much better-than-expected American ADP Employment Change data released early yesterday afternoon strengthened the euro significantly, completely wiping out the greenback’s earlier gains. April’s fall off 491k was far ahead of the -644k analysts had predicted and much better than the 742k fall the month before. This buoyed investor confidence, with some feeling a global economic recovery may not be too far off and therefore they bought into the perceived “riskier” single currency. However, in late trading, most of the single currency’s gains were cancelled out as the euro came under increased selling pressure ahead of the ECB’s interest rate decision later today, although it still finished the day up at 1.3332.
In early trading today, the euro has weakened significantly against the dollar this morning as investors look to the perceived safe-haven of the greenback ahead of some major announcements. In America, First Quarter Non-Farm Productivity figures are due to be released at 13.30 BST, whilst a speech by Fed Chairman Ben Bernanke will take place at 14.30 BST. The results of US government “stress tests” are also due at some point today. In the eurozone, German Month-on-Month and Year-on-Year Factory Orders data for March is due at 11.00 BST, whilst at 12.45 BST the European Central Bank will announce its all-important interest rate decision. Finally, ECB President Jean-Claude Trichet will give a speech at 13.30 BST.
However, much better-than-expected American ADP Employment Change data released early yesterday afternoon strengthened the euro significantly, completely wiping out the greenback’s earlier gains. April’s fall off 491k was far ahead of the -644k analysts had predicted and much better than the 742k fall the month before. This buoyed investor confidence, with some feeling a global economic recovery may not be too far off and therefore they bought into the perceived “riskier” single currency. However, in late trading, most of the single currency’s gains were cancelled out as the euro came under increased selling pressure ahead of the ECB’s interest rate decision later today, although it still finished the day up at 1.3332.
In early trading today, the euro has weakened significantly against the dollar this morning as investors look to the perceived safe-haven of the greenback ahead of some major announcements. In America, First Quarter Non-Farm Productivity figures are due to be released at 13.30 BST, whilst a speech by Fed Chairman Ben Bernanke will take place at 14.30 BST. The results of US government “stress tests” are also due at some point today. In the eurozone, German Month-on-Month and Year-on-Year Factory Orders data for March is due at 11.00 BST, whilst at 12.45 BST the European Central Bank will announce its all-important interest rate decision. Finally, ECB President Jean-Claude Trichet will give a speech at 13.30 BST.
AUD Morning report
The Australian dollar reached new 12 year highs against sterling overnight, as speculation that the global economy is beginning to turn continues to drive demand for riskier assets and high yielding currencies. With further positive data from the US and robust domestic retail sales figures, the aussie edged its way toward the 2 mark. Given the plethora of data due out over the next 24 hours investors will still remain cautious in what is likely to be a time of high volatility. Focus will be on interest rates decision from both the BoE and ECB today - the British central bank is predicted to leave rates on hold, but investors will monitor whether they give any further clues on future plans to increase the credit supply in the economy.
NZD Morning report
The New Zealand dollar managed to gain ground against the aussie and sterling overnight, despite yesterday’s data showing slowing wage growth in New Zealand, which has reinforced expectations of further rate cuts. The kiwi's direction is still largely coming from broader market movements with improved global optimism driving increased risk appetite. Today key European and US data is likely to dominate proceedings.
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