Poor public finance data nudges sterling lower

Sterling took a step lower against the euro today and moved very slightly lower against the US dollar after UK data was released showing unexpectedly high public borrowing figures for November.

The Public Sector Net Borrowing Requirement result has called into question whether the government can meet its deficit-cutting target. The figure came in at almost £23billion in November, up from targets and last year’s figure of £17billion. The data, in conjunction with recent weak retail sales data, has shifted focus onto the state of the UK’s fragile recovery and its ability to grow in Q1 next year.

Despite this momentary blip, focus will undoubtedly return to the state of the EU and its debt crisis. Having had Ireland’s credit rating reduced to that of Trinidad & Tobago, Moody’s has now put Portugal on review for a possible (imminent) downgrade. Expect to see this saga continue throughout 2011.

In other news, the Swiss franc is continuing its bull charge as it smashes through all time highs against all of its major counterparts.

Tom Hampton
Analyst – Caxton FX

Downgrade risk hurts the euro

The euro is continuing to weaken on speculation European nations will struggle to raise funds after Ireland suffered a five notch credit downgrade.

Ireland’s repositioning just above ‘Junk status’ has sparked renewed concern over the future of other indebted nations in the eurozone. In response, the single currency depreciated against most of its major counterparts including a two week low against the US dollar and Japanese yen, as well a record low against the Swiss franc.

Sentiment is very bearish towards the sixteen nation currency with the prospect of further downgrades looming overhead before the long Christmas break. Whispers in the market point to even France being in the crosshairs of Moody’s et al as the cost to insure French government debt has trebled this year. The abundant credit warnings and increasing speculation over the spirally debt crisis have left the euro looking particularly vulnerable as we head into the new year.

Divisions within the European Central Bank are also not helping the situation. European finance ministers have ‘serious concerns’ that the Irish draft legislation to fix the banking system may threaten the ECB’s ability to run its liquidity operations.

In other news, the aussie dollar continues its run of good fortune as it hits a 25 year peak against the pound and the euro following the Irish downgrade.

Tom Hampton
Analyst – Caxton FX

Euro has a momentary bounce

The euro has managed to claw back some of its losses as a three day selling spree lost steam. However, doubts still remain whether the eurozone can contain debt problems.

Rumours that the EU are looking to be more proactive in dealing with Portugal and Spain than they were with Ireland, has sent the single currency back up to $1.3143 and €1.1885 against the US dollar and sterling respectively. The news has also tightened (very slightly) bond premiums in Portugal, Spain and Italy over their German counterparts. An announcement tomorrow from the ECB will help to clear up these rumours, although the 16-nation currency still remains vulnerable to more heavy selling.

Another angle on this could be that the EUR has fallen at such a rate the market has been caught short of euros and investors are taking a ‘breather.’ Expect to see further selling resume after the ECB meeting on Thursday.

More good news this morning about the state of the UK economy, as better than expected Manufacturing PMI data gave the pound a short boost. The index came in at 58 for November, greatly exceeding the market predictions of 54.8. This is a 16 year high for the index. PMI data from the construction and service sectors are due tomorrow, but it would seem that the UK recovery is gaining traction.

Tom Hampton

Analyst – Caxton FX

The euro struggles to find a bottom

The euro has fallen across the board again this morning, dropping to an 11-week low against the dollar hitting $1.2972 and enabling the pound to climb up to €1.1956.

The single currency has fallen by over 1% to sit just below the $1.30 level. A lack of confidence in the Irish bailout and growing concerns over the Iberian peninsula have caused the premium investors demand to hold Spanish bonds to soar to a lifetime high over their German counterparts. A lack of confidence is also weighing heavily on Portuguese, Irish and Italian bond yields. The effect is even starting to spread to other financially sound economies by association as Belgium’s spread widens.

Speculation on how far the euro can actually fall ranges from parity against the greenback to $1.25. However, the last two times the EUR/USD rate fell below its “200 day moving average”, the rate sank by 18% and 16% respectively, bringing $1.10 into play.

Data from the eurozone this morning has been flat, with a better than expected result in US consumer confidence later this afternoon, we could see the 16 nation currency fall even further.

Tom Hampton
Analyst – Caxton FX

The euro in free fall

The euro has fallen to two month lows against the US dollar and sterling, hitting $1.3066 and €1.1891 respectively.

A confirmed bailout package of €85billion has not managed to sooth the markets fears over the state of the eurozone as a whole. The issue has escalated so far that the single currency has fallen below its 200 day moving average and the next key target is €1.30. Investors expect further losses given the uncertainty surrounding the fiscal outlook of the regions ‘peripheral’ countries. With the state of the economies of countries like Spain and Portugal, it is hard to see light at the end of the tunnel. To put things into perspective, Spain’s economy is twice the size of Portugal, Ireland and Greece combined. A bailout package for the Spaniards would make anything we have seen so far insignificant.

With very little out this week from the UK, all eyes will be on EUR/USD, with the UK currency a mere spectator. Look for any bad news results from the eurozone and Friday’s Non-Farm Employment Change figures. Having heard very little of the results of the South Korean’s and the American’s sea trials over the weekend, an escalation in problems over there will only have a negative effect on the 16 nation currency.

Tom Hampton

Analyst – Caxton FX

The dollar heads yet higher

Sterling fell to its lowest level for one month against the US dollar, bottoming out at $1.5614. With very little data out today, the pound’s just a spectator to broader market flows into the US currency. Britain’s strong links with the eurozone, which is having another torrid day in the markets, aren’t helping.

The euro’s falling after a report in the FT Deutschland said the majority of eurozone nations and the ECB were urging Portugal to apply for a bailout. Borrowing costs for Europe’s most indebted nations are at a record high as concerns reach fever pitch over several EU member states. The average yield for 10 year bonds from Greece, Ireland, Portugal, Spain and Italy reached 7.56%, its highest level since the inception of the single currency.

The dominating theme in the markets at the moment is one of risk aversion. With South Korea and America flexing their muscles on North Korea’s horizon with a series of sea trials, fears of a full on war are taking their toll on the market. The greenback has soared to a seven week high against the Japanese yen and the euro, hitting Y83.95 and €1.3204 respectively. Until a calmer sentiment descends on the market, we can also expect to see higher yielding currencies taking a step back as they have today.

Have a nice weekend and come on England!

Tom Hampton
Analyst – Caxton FX

Déjà vu

With a quiet data calendar and little fresh news out the eurozone, today’s trading pattern smells very similar to yesterday. The euro has made up some of its lost ground over lunch, following a disappointing morning.

This morning, the euro traded near a two month low against the US dollar as rising borrowing costs in Spain and Portugal fanned the flames of concern that Europe’s debt issues will worsen. If the single currency has its fourth straight drop against the greenback, it would be its longest losing streak for three months. Reports that capital is leaving the periphery nations has put the 16 nation currency under even further pressure. The recent decline in Spanish bonds has come despite reassurance from the Spanish Deputy Finance Minister that the nations funding for the rest of the year is ‘comfortable.’ The fact that it has even come into question seems to be concern enough for the market.

The euro’s bounce after lunch could well be due to very thin trading volumes today as America loosens its belt in preparation for roast turkey and pumpkin pie. Happy thanks giving!

Tom Hampton
Analyst – Caxton FX

Euro extends its losses

Although the euro has regained some of the day’s losses, the single currency earlier fell to a two month low against the dollar, extending its losses caused by uncertainty over Ireland’s plans to tackle its debt problems as political unrest deepens. Uncertainties remain over whether the crisis in Ireland will actually be resolved as the IMF and EU try to reach an agreement with a government teetering on the brink of collapse.

Fears of the crisis spreading to other peripheral eurozone nations has reached fever pitch as concerns seem to have skipped the next logical step, Portugal and moved straight to Spain. A default from the Iberian Peninsula would dwarf anything so far as it is the continents fourth largest economy. Peripheral government bond yield spreads over Germany have widened as a result.

Another factor lifting the dollar is of course the unstable nature of relations between North and South Korea. A statement released from north of the border suggested that the two nations are approaching a state of all out war. This has only helped the so called ‘refuge’ currencies as investors look for safety until matters are resolved.

All in all, sterling is not a bad place to have your pennies in at the moment.

Tom Hampton
Analyst – Caxton FX

This ain’t no currency war!

There has been a definite shift in sentiment towards ‘risk off’ as news that North and South Korea exchanged artillery fire last night, causing the US dollar, Swiss franc, and Japanese yen to appreciate.

The dollar rose against all of its major counterparts, bar the Swissie, as North Korea fired artillery shells into South Korea near the border. As the South Koreans retaliated, demand for refuge currencies increased and higher yielding assets took a knock. The euro, which is already struggling due to the Irish debt crisis and a renewed bout of political turmoil, has fallen about a cent and a half against the greenback (currently trading at a 7-week low). With further concerns about to rear their head over the state of the Greek economy (the government is threatening to shut down in order to save money), problems in Portugal and a tough global fourth quarter in full swing, we don’t envisage a turnaround in this euro downtrend remain for some time yet.

In addition, expect to see more volatile assets such as the aussie, kiwi and rand remain on the back foot as this period of political and economical uncertainty prevail. The Thanksgiving holiday in the US is yet a further reason for investors to place it safe as they head into a long weekend.

Tom Hampton
Analyst – Caxton FX

Afternoon euro weakness

On a day with very little economic data, the euro has erased early gains following an initial agreement to rescue Irish banks to prevent wide spread ‘illness’ across the eurozone’s debt markets.

The single currency had reached a one week high against the greenback and ended a four week losing streak against sterling, hitting $1.3786 and £1.1606 respectively. The highs came after EU finance ministers said the deal will create a capital fund for Irish banks and is estimated to be worth about €90billion (rumours are abundant as you’d imagine).

Ireland’s request for a bailout makes it the second euro member to seek rescue from the EU and IMF. Speculation about the financial stability of other member states has led to fears that the single currency is in fact just a bankruptcy machine working its way through the region. This will of course be music to the ears of many euro skeptics (myself included) like the Swede’s whose national referendum stopped Sweden joining the common currency. How the powers that be ever thought so many individual economies could be brought together in harmony is/was ludicrous. Each economic area needs to retain certain elements of monetary policy to ensure the best possible trading conditions for their own economy. This may explain why in the early 2000’s, Germany’s economy was at its most sluggish since world war II, however, Ireland was deserving of the nick name the ‘Celtic Tiger.’ Who is roaring now?

Tom Hampton

Analyst – Caxton FX

The ridiculous euro

The euro is once again edging up against most of its major counterparts, recouping earlier losses on expectations that the Irish are near a deal with the IMF and ECB for a bailout package. Against the single currency the pound has fallen back below €1.17 , whilst the euro / dollar rate is holding around $1.3650.

It seems the market is unwilling to let the EU currency deteriorate despite all the problems facing it. Other than some non EU companies and countries making bad foreign investment, it is mindbogglingly frustrating. The structural problems facing the region at the moment start with astronomically high expenditure on social security. All those who go on strike because they refuse to work past the age of 45 are fanning the flames of a defunct banking system that is over-leveraged, governmental budgeting problems and national bankruptcies. Why can the market not see that the euro is a bankruptcy machine taking each nation down one by one? After Ireland comes Portugal, then Spain; bring on Italy next, and even the more securely financed structure of France could well have problems. If it was not for the frugal Germans propping up the continent, this would have happened a long time ago. The sooner these problems are factored into the market the better.

Phew! Now that is off my chest, I am wondering if the market or the euro is the more ridiculous?

Have a good weekend.

Tom Hampton
Analyst – Caxton FX

Sterling slips against the dollar

Sterling is down against a broadly firmer US dollar but remains at a seven week high against the struggling euro, currently trading at $1.6070 and €1.1820 respectively.

The greenback extended its gains from last week as better than expected retail sales data prompted a group of Republican economists to launch a campaign calling for the Fed to reduce its quantitative easing plan. The dollar index (a measure of the dollar’s value in comparison to a basket of currencies) hit a six-week high while the 10-year US treasury yield rose to its highest in two months and the 5 year yield rose more than 10 basis points (higher yield prices will drive up demand for US bonds).

Further concerns over the European debt crisis have sent the pound higher against the single currency today. Ireland is currently the nation under the kosh at the moment. It has been reported the Irish have rejected a bailout package from the ECB. The offer may still be taken up however, as Irish debt is currently running at over 30% of GDP, Anglo-Irish and Allied-Irish banks combined debt is roughly equal to a full years GDP. A statement from the emerald isle earlier today mentioned that they have enough liquidity to last ‘most of 2011.’ This does not sound like a long-term solution and some sort of bailout is surely necessary? (This could ironically be euro positive)

A raft of UK data out this week along with the B of E minutes from their November meeting could send the UK currency even higher as there will be very little support for further monetary easing.

Tom Hampton
Analyst – Caxton FX

Ireland’s potential bailout boosts the euro

Sterling fell against the euro today – ending a run of six straight sessions on the rise - following speculation that Ireland may soon have a bailout package agreed. The supposed bailout helped to dampen fears about debt problems facing the periphery eurozone nations.

Despite poor preliminary GDP figures from France, Germany, Italy and dreadful industrial production results, the euro still managed to regain some of its losses from the past few days to currently be trading around €1.1730 against the pound.

The one saving grace for the euro is whispers in the market about an €80billion bailout package for the emerald isle. However, Ireland’s finance ministry said chatter about a bailout was untrue, but traders said reassurances from the EU and G20 that bondholders would not have to take a write down on Irish debt helped the euro to recover. It was later reiterated by the European Commission that Ireland had not requested financial aid.

It is hard to believe that GBP/EUR would have such a big movement against the grain, simply because Irish bondholders will not be taking a hit due the economy’s fragility alone. This reassurance may set some minds at ease, but stagflation in Spain and less than convincing GDP figures would surely override this? Next week we could see a full bailout plan for the Irish government, conveniently to the same tune as Allied Irish and Anglo Irish Banks combined.

Next week, with another busy week of data to be published from the UK, we could see similar gains for the UK currency.

I hope we see England drive the Aussies over the try line of parity just like the greenback has done today. Come on England!

Tom Hampton
Analyst – Caxton FX

Sterling gets a ‘pick me up’

Sterling strengthened against all of its major counterparts, to hit a six week high against the euro and pass $1.61 against the dollar, following the Bank of England inflation report this morning.

The BoE revised up its outlook for inflation over the next two years, further reducing the chances of an increase in monetary easing. The bank adjusted its forecast, stating that inflation is likely to remain above the 2% target, possibly through until the end of 2012. With a VAT rise of 2.50% due on January 1st, a move to increase the asset purchase programme would put too much upward pressure on an already above target rate of inflation.

The report did still have the hallmark of a dovish Mervyn King, outlining the significant uncertainties that surround the UK economy and problems that it faces next year (not to mention the vicious government spending cuts). After all, a Japanese-style scenario still looms with the possibility of high inflation and low growth over the coming months/years.

In other news, the single currency is at its lowest figure against the greenback since May, proving that the new debt issues surrounding the eurozone are starting to take their toll. If the troubles continue to hit the headlines we could see investors run from the euro as we head towards Christmas.

Tom Hampton

Analyst – Caxton FX

Sterling hits a high against the euro

Sterling rallied to its highest level in six weeks against the euro to hit €1.1641. However, further gains have been capped amid caution ahead of Wednesday’s inflation report from the Bank of England.

Early in the session, the euro’s losses deepened due to elevated concerns over a budget vote in Ireland causing 10 year bond yields to move above 8% yesterday. However, disappointing production and trade balance figures from the UK helped to stem the pounds gains.

Since the data, the pair have traded within a very tight range as investors wait for tomorrow’s report from the BoE, with the price hovering around the 1.16 level. It is highly unlikely to see a move much higher this afternoon and indeed a bout of profit taking could see the price ebb lower as we head into the later session.

Despite the UK’s consistently high inflation figures over the past few months, tomorrow’s report could have a deflationary effect on sterling as Mervyn King is notoriously dovish at these events.

In other news, anybody skiing this season will have a shock landing in Geneva airport as the Swiss franc continues to go from strength to strength. Over the past year, the swissie has seen some large gains and pull backs. The fact remains that the franc holds the most longevity as a safe haven investment going into a tricky Q4. You may want to think before you buy your sandwich at the airport, maybe wait until you reach the economic safety of the notoriously cheap French ski resorts!

Tom Hampton

Analyst – Caxton FX

The dollar continues to strengthen

Investors continue to unwind their short positions in the greenback today with the US currency up across the board following on from Fridays positive employment data.

Solid non-farm payroll data and renewed concerns over the debt crisis in the eurozone have contributed to the descent of EUR/USD which is down one cent on the day, currently trading at $1.3930.
With most, if not all questions answered about another round of monetary easing in the US, the market is now able to bring the euro’s problems back to the foreground. Data suggesting that the Spanish economy is reaching stagflation, Irish and Spanish bonds hitting record highs against their German counterparts, and a scare over liquidity issues for a major Spanish bank (see last paragraph) have all helped to suppress the single currency.

The ‘buck’ has maintained its positive run against sterling as well, however the effects are muted as the pound continues its run on the euro, currently trading around €1.1580. GBP did manage to hit a peak of $1.6288 on Thursday, however the dollar has inched its way back to $1.6145.

Apart from the BoE Inflation Report on Wednesday, this week is fairly light on market moving announcements. Expect to see more problems exposed in the EU though; it is about time the truth came out.

In other news, I reported a potential ‘run’ on a major Spanish bank that was having liquidity problems. It turns out that these reports were unsubstantiated. The truth of the situation is this; a large queue formed outside a BBVA branch in Madrid. The people in said queue were in fact waiting to be issued with their numbers for a 10k run. BBVA had sponsored the runners out of the kindness of their corporate hearts, however this was misconstrued as a potential liquidity problem and BBVA’s share price fell by 2%....... Things really are that jumpy in the PIGS at the moment!

Tom Hampton

Analyst – Caxton FX

Dollar steadies

The dollar extended its advance from a nine-month low against the euro as employment data came in almost three times higher than the market has forecast.

The single currency fell early in the session as weaker than expected European retail sales figures and German factory data were published. Further news that the Spanish economy had stagnated re-positioned focus on to the troubled periphery nations and their debt problems.

Midway through the London session, data revealed that October’s US non-farm employment change was up 151,000. The number was a vast improvement on last month’s fall of 41,000 and bettered analysts’ predictions of a lowly 61,000.

Further news of a liquidity problem within a major Spanish bank (not hard to guess which one) has helped depress the euro further.

The greenback is currently trading at $1.4093 and $1.6233 against the euro and the pound respectively.

In other news, the aussie and kiwi dollar look set to notch up their best weekly gains in months and don’t look like stopping. The aussie broke through parity this week to hit a 28 year high (the highest level since the aussie was allowed to float on the open market) of $1.0181 against the US currency.

There is not as much market moving data out next week, however inflation reports from the UK and China could be very important. Especially for our brothers from the antipodes with lofty aspirations. Hopefully England can put one over on them this weekend!

Tom Hampton
Analyst – Caxton FX

Dollar weakness everywhere!

The US dollar has suffered across the board following last night’s announcement from the Fed that they will issue a further $600billion in a second round of quantitative easing (the figure could actually be closer to $850billion if you include the toxic debt reinvestment scheme).

In the wake of the announcement, sterling has risen to its highest level against the greenback in nine months, almost touching $1.63. The announcement of QEII in the states contrasted with the decision from the Bank of England. At midday, the BoE announced it had decided to keep interest rates and its asset buying programme steady, enabling sterling to rise over two cents on the session.

The euro rose to a session peak of $1.4281 against the US currency after a considered, but slightly optimistic speech from JC Trichet. The size of the new bailout package across the pond, combined with the ECB alluding to a slight upward pressure on the euro from inflation sent the single currency to its strongest position since mid January.

The aussie dollar finally found stability above parity with its US counterpart to a high of $1.0146, that’s right, one George Washington is now worth less than one Queen Elisabeth II (QEII spooky?). The combination of the highest interest rates in the G20, high commodity prices and insatiable demand from China has finally proven to be enough to break through the psychologically important parity level.

This spate of dollar weakness does present a fantastic buying opportunity, especially for those long of the aussie. With the US debacle sorted until next July (hopefully), expect to see a resurgence from the greenback in the future, especially when the eurozone is no longer capable of sweeping its increasing worries under the proverbial rug.

Tom Hampton

Analyst – Caxton FX

Sterling falls off the back of disappointing construction data

In contrast to yesterday’s manufacturing figures, today’s construction Purchasing Managers Index (PMI) came in worse than expected. Analysts were predicting a modest monthly fall in the index to 53.1, however, the figure came in at 51.6, down quite significantly from last month at 53.8.

Following the news that activity in Britain’s construction sector slowed to its weakest level for eight months, sterling has taken a dive. The survey suggests construction will not make as strong a contribution to growth in the fourth quarter as it did earlier in the year. Thin trading volumes ahead of statements from the UK, US and EU central banks tomorrow and Thursday could have exacerbated the losses.

In other news, a surprise decision by the Reserve Bank of Australia to raise interest rates to 4.75% has once again sent the aussie through parity with its US counterpart to hit $1.0022, its highest level ever recorded. With very strong fundamentals and growing exports to China, Australia stands in a very strong position. In fact very little seems able to stop the aussie at the moment. Let’s hope the autumn internationals see a different result.

Tom Hampton
Analyst – Caxton FX

Strong data supports sterling’s recent ascent

Sterling climbed against the US dollar and the euro following an unexpected rise in UK manufacturing data , which added weight to the UK’s economic recovery and dampened expectations that the Bank of England will extend quantitative easing.

Analysts were predicting the index would fall to 53.2, however, the Purchasing Managers Index (PMI) rose to 54.9 in October from 53.4 in September. The pound jumped to a session high of $1.6089 against the greenback and €1.1545 against the single currency.

The pleasing figure followed on from positive GDP data last week which showed that the economy grew by 0.8%, double the market’s expectation in Q3. This run of encouraging data from the UK economy all but confirms that the Bank of England will hold fire on further quantitative easing when the MPC meets later in the week (Thursday).

In other news, the currency market are generally quiet today with no big moves as investors wait to see what happens in the slew of announcements due later in the week. This is definitely the calm before the storm!

Tom Hampton
Analyst – Caxton FX

Sterling’s gains continue

Sterling is going for its fourth consecutive day of gains against the euro this week, briefly touching a three week high of €1.1519 earlier in the session.

The pound is continuing to outperform its peers after strong UK GDP figures earlier this week, helping to lower the risk of more monetary easing from the Bank of England. There was further good news for the UK this morning as a survey showed that UK consumers are more confident over their personal finances. Against the US dollar, the UK currency did start the day marginally down. However, a slightly worse than expected preliminary GDP figure at lunch time from the states has sent the pound higher to be trading just below $1.60.

In other news, next week we will see a raft of market moving data with central bank policy meetings due in the UK, US, Australia, Japan and China. Get ready for a bumpy ride and don’t forget to put your clocks back on Saturday night.
Have a good weekend.

Tom Hampton
Analyst – Caxton FX

Sterling makes gains stick

Sterling has spent most of the day with minimal gains against the majority of its peers, solidifying gains made on Tuesday. Against the US dollar, GBP is a full percent higher.

Better than expected GDP figures on Tuesday sent the pound skyrocketing to post the biggest daily gains it has seen since May. Since then, we have not seen any great swings. It appears for now like the gains are here to stay as the pound posted a modest gain yesterday and looks like doing the same today. Sterling is currently trading up above the €1.1450 level despite yet more disappointing housing data from Nationwide this morning.

Earlier in the week the US dollar did dust off its armour and join sterling in the battle against the euro. However, the greenback has failed to hold its reclaimed territory and has been driven back. The looming QEII decision next week seems to be too much for the USD to counter. However, it’s looking increasingly unlikely that the euro hoards can keep up their pretence for too much longer as fresh concerns over Greece’s debt issues are starting to show yet again [bond spreads widening]. The question is not necessarily if the dollar will rise again, it is more a question of when?

Tom Hampton
Analyst – Caxton FX

Sterling maintains 1.14 level after yesterday’s ascent

Sterling is holding its gains today after in the previous session it enjoyed its biggest climb against the euro since May this year.

The pound seems to be holding its ground against all of its counterparts except the US dollar. Against the euro, investors continue to pare expectations about the possibility of further monetary easing from the Bank of England. Positive comments from S&P about the health of the UK economy have also helped to keep the UK currency around €1.1450.

The greenback is making up ground today after a Wall Street Journal article stated that the Fed was likely to “gradually” introduce stimulus measures at their next meeting, rather than the $500bn that the market has been pricing in. Many investors are beginning to see this as a turning point for the US currency as the looming second round of quantitative easing has now been priced in and as problems in the eurozone start to gain headlines once again.

In other news, the aussie’s rally has lost steam momentarily after surprisingly tame inflation data led investors to doubt the central bank would raise interest rates next week.

Tom Hampton

Analyst – Caxton FX

Better than expected UK GDP figure puts a spring in sterling’s step

Sterling has bounced back against all of its major counterparts posting daily highs of $1.5894 and €1.1421 against the US dollar and euro respectively.

A better than expected reading of 0.8% growth for the UK economy in Q3 was due to come in at only 0.4%. This helped to dampen speculation the Bank of England may soon implement more quantitative easing. The positive Q3 data came after a stellar Q2 reading of 1.2%, suggesting that the UK economy is more robust than previously thought as the government prepares to implement austerity measures across the board, which were outlined last week.

The pound’s rally gained further momentum as the ratings agency S&P revised its outlook on the UK economy to ‘stable’ from ‘negative.’ This helped to give further assurance over the strength of the UK’s economy.

However, sterling’s mini-recovery could be short lived as notorious dove/doomsday prophet/MPC member Adam Posen is due to give a speech in Belfast at 5pm. If he decides that another rant outlining that monetary easing is the only thing to save the UK economy, we could see GBP sold-off late in the New York session.

In other news, Paul the psychic octopus has died aged two and a half. Paul’s uncanny knack for correct predictions would be very helpful on the rollercoaster that is the global currency market at the moment. R.I.P to the greatest analyst of all time!

Tom Hampton
Analyst – Caxton FX

G20 hails a result for minnows

The US dollar has been sold across the board today as the G20 meeting over the weekend came to the agreement to shun competitive currency devaluation.

At the meeting in South Korea (nicely timed for corporate hospitality at the grand prix), a surprise deal was struck to give emerging nations a bigger voice in the IMF, recognising the power shift away from the traditional West. This recognition of a new ‘world order’ could be exacerbated by the dichotomy of what will happen over the next twelve months. As stated before, it is the developing nations of the East and South America that will be the driving engines to pull the world economy through these dark days. Whereas, the established West (US, EU and UK) languishes in their own self-pity and inability to compete. Action needs to be taken, but will extra monetary stimulus be enough to answer the West’s prayers? Governments need to help prop up private enterprise, after all it is these companies and their employees that pay the taxes.

In other news, sterling has hit a 7 month low against the euro today on concerns that the Bank of England may be veering towards more monetary easing to revive the flagging economy. However, if the rate of inflation stay at 3% or higher, can Mervyn and the boys really ‘print’ more money and artificially inflate the economy?

G20 meeting this weekend

The market seems fairly stable today as investors are hesitant to take out positions ahead of this weekend’s G20 meeting between the world’s financial leaders.

The US is raising the stakes in calling for countries to avoid using their currencies to gain economic advantage. US Treasury Secretary Tim Geithner, in a letter to the G20 finance pointed out that ‘emerging economies with undervalued currencies and solid reserves must allow their currencies to adjust in line with fundamentals.’ Of course, every financial leader of emerging economies will be looking to poopoo this as a weaker currency makes their exports much more attractive.

Leaders of more developed economies will be looking to strike some kind of accord to secure this agreement in principle, however pushing it through will be a lot harder in practice. It is highly unlikely that a binding agreement will be reached this weekend as heads of the developing economies will protest about the ability of countries such as the US and the UK to structure huge bailout packages.

In other news, sterling’s decline continues as it faces a sixth straight week lower against the euro. With the downward pressure associated with that fateful phrase “quantitative easing” in the UK and US showing little signs of abating, this trend is set to continue at least ahead of the Fed’s Nov 3rd meeting. Maybe if the French can protest for long enough, the eurozone’s debt issues will take their rightful place at the fore of the market’s focus.

Have a good weekend!

Tom Hampton
Analyst – Caxton FX

‘Hard road leads to a better future’

Just one of the chancellor’s quotes from today’s government spending review. The market seems to believe it does lead to a brighter future as sterling remains within range of where it was before George Osborne opened his mouth.

Despite the pound’s seesaw journey during this afternoon’s session in parliament, it has come out relatively unscathed. This either suggests that the market believes in what the government had to say, or, more likely, has already priced in the potential adverse affects (the other suggestion is that the review had little of any real substance!). The truth is probably somewhere in the grey middle. Most of the spending cuts had been accounted for. However, the crocodiles teeth I have been tracing for the UK currency against its peers on my screen for the past 2 hours tell a different story. If it was all priced in why was there so much volatility?

The truth is this: the next 18 months can go one of two ways. The bleakest view is for most of the west to suffer a double dip. A dire Q4 could put the UK back in recession with stubbornly high inflation and plenty of SME’s going under. It would be a long and slow road to recovery led by the east and a weak UK currency to try and boost exports.

The second scenario would be for the west to narrowly avoid recession with some economies following Japan into stagflation. The recovery would be led by the east (again), the UK’s austerity measures gain traction and market confidence grows, bringing foreign investment and inflates sterling.

Either way, we will see a series of troughs and peaks before we are out of the woods. With the government cutting costs to the tune of £81billion and a VAT hike on the horizon, the UK will be looking to private business to pull us through. The banks need to start lending again, however, with a banking levy on the cards, how likely is that?

Tom Hampton
Analyst – Caxton FX

Return of the buck

The US dollar is up against all of its major counterparts today, over 1% higher against both sterling and the euro at $1.5730 and €1.3800 respectively.

In a surprise move, the People’s Bank of China raised it’s one year lending and deposit rate by 0.25%. The first rate increase in nearly three years. This caused the commodity linked currencies (which are predominantly also the higher yielding currencies) to fall sharply as investors looked to move their assets back into the potentially undervalued greenback.

The US currency’s rally is an extension of earlier gains, which came after US Treasury Secretary Tim Geithner said the US would not be engaging in dollar devaluation and needed to work hard to preserve confidence in a strong dollar.

The greenback has not only clawed back heavy losses suffered over the past few weeks against the commodity driven currencies, but it has also made substantial gains against other safe-haven currencies. Against the Swiss franc, USD is up almost 1.5%, and is also trading higher against the yen, moving away from 15 year lows.

In other news, all eyes are on the UK government’s spending review which will officially be released tomorrow. With news leaked that the new £2.2billion HMS Ark Royal has been scrapped from the defence budget, maybe QE2 will take its place?

Tom Hampton
Analyst – Caxton FX

Sterling awaits Wednesday’s MPC minutes

With the calendar quiet on the data front, sterling has fallen by more than half a percent against the US dollar to trade just above the $1.59 level and has also lost ground to the euro, dropping below €1.14.

The pound has come off last week’s eight and a half month high against the greenback on doubts about how aggressive Federal Reserve monetary easing will be. There is also a sense now that Fed easing has been priced in leading some investors to cut their bets against that the dollar will decline.

The UK currency also remains vulnerable ahead of the publication of the latest MPC minutes and the UK government’s spending review, both on Wednesday. The review could increase speculation for more quantitative easing in the UK, and the BoE minutes could see a dovish move led by Adam Posen, putting sterling under further pressure. This all lends itself to the hypothesis that GBP will still have a little way to go towards the downside before things improve.

In other news, the outperforming aussie dollar made a move to beat parity against the US currency on Friday off the back of Bernanke’s speech where he outlined the Fed’s case for more easing, but has since dropped back to 0.99.

Tom Hampton
Analyst - Caxton FX

Sterling breaches $1.60 as dollar slumps

In a day short in economic data or announcements, sterling reached an eight month high against the US dollar to hit briefly hit a rate of $1.6065.

The catalyst for heavy selling pressure on the greenback came from Asia overnight as the Monetary Authority of Singapore opted to tighten policy by appreciating their currency and selling the US dollar. Further speculation that the Fed will pump an extra $500billion put even more pressure on the greenback and the UK currency looks like it could hover around the $1.60 level for some time. Whilst all of this dollar selling has been going on, the pound stayed close to its weakest level in almost six months against the euro as concerns that the Bank of England could follow the Fed and increase its monetary easing policy.

In other news, the Australian dollar has powered to a new 28-year high to nearly hit parity with the greenback, its strongest level since it was allowed to freely float in 1983 hitting $0.9992 earlier today. It looks like parity is only a matter of time now. In fact, the aussie has risen 66% in 24 months. Good on ya, you flaming galah!

Tom Hampton
Analyst – Caxton FX

Poor consumer confidence data hinders sterling

Sterling hit a five month low of €1.1315 against the euro this morning following UK data revealing a decline in consumer confidence, but gained against the dollar as the minutes from the Fed’s latest meeting all but confirmed expectations of additional stimulus measures in the near term.

Although hitting a low early on, the pound has recovered slightly in early afternoon trade whilst remaining within a comparatively tight range. Mixed labour market figures, slightly worse than expected consumer confidence postings and the news that Standard Chartered Bank will be launching a $5.3billion rights issue (forcing overseas investors to buy the UK currency) have not given much direction. Investors are waiting for larger macro policy decisions from central banks (particularly on the question of QE) before they move away from current positions.

Also of note today has been the single currency’s inability to break through the glass ceiling of $1.40 at what is now its fourth time of asking. This barrier appears to be quite a large watershed, dividing opinion on where the US dollar and the euro will go. If the resistance level persists for too much longer, we could see a resurgence in support for the greenback and the exiting of long positions in the sixteen-nation currency. However, with QE2 increasingly looking like a question of ‘when,’ not ‘if’ in the US, the more likely outcome will be a breakout to $1.43/45 for the euro when the Fed restarts its programme of “printing money.”

Tom Hampton
Analyst – Caxton FX

From hawk to sitting on the fence

Sterling fell to a one week low against the US dollar to bottom out at $1.5797 for the day.

Downbeat comments from David Miles, an MPC member, today helped to fan more flames about monetary easing for the UK economy. In a statement this morning, Miles said that ‘quantitative easing remains a potentially powerful tool and one that we might come to use.’ These comments came after his Dublin speech in which Miles outlined the difficulty policy makers face at the moment of not doing enough to curb inflation and being sure not to tighten policy too soon, killing the fragile recovery. The change in sentiment from these two statements could mirror the increasing concern within the Bank of England about the state of the UK economy.

The key data today was UK inflation, but the figure, 3.1%, was in line with expectations had had little lasting impact on price movements. The level has now been above the Bank’s 2% target for 10 consecutive months but the BoE remain of the stance that it will fall back over the medium term.

In other news, declining global equity markets have added to risk aversion enabling the greenback to make a slight comeback along with gold hitting yet another all time high currently trading over $1350 per troy ounce.

US non-farm figures turn out worse than expected

The US non-farm employment change was expected to nudge into positive territory this month, however a 95,000 drop in employment was revealed.

This surprise figure had an initial shock effect sending the dollar down to the day’s low of £0.6278 from £0.6305 against the pound and to a fresh fifteen year low against the yen below 82yen. However, since the data was published the greenback did stage a short recovery as investors sold their short dollar positions ahead of the long US weekend.

In other news, look out this weekend as the G7 and IMF meetings will no doubt be centred around the ‘currency wars’ that showing signs of breaking out between the higher yielding currencies, in particular the Brazilian real, in an attempt to keep their exports competitive on the world stage. Another hot topic will be the increasing discomfort bigger players in the currency market are feeling from the painfully slow appreciation of the Chinese yuan. You have to feel sorry for the German export market as the euro has increased in value by almost 10% in just one month making the relative price of Chinese exports that much cheaper by comparison.

Tom Hampton
Analyst - Caxton FX

Bad morning, good afternoon

In a complete reversal of yesterday, sterling started the day on a low hitting €1.1359 against the euro, but has since rallied.

Sterling was lower against almost all of its major peers this morning as investors braced themselves for the outside possibility that the Bank of England would announce a fresh round of monetary easing. However, as was widely expected, the interest rate remained at 0.5% and no more money was “printed.” In fact, slightly better than expected UK manufacturing data has helped the pound push upwards this afternoon as it rose to a daily high of $1.6016 against the greenback and comfortably back above €1.14.

In other news, the dollar fell to a fifteen year low against the yen and the weakest in more than eight months against the euro amid growing expectations the Fed will expand credit easing to sustain the US recovery. Look out for the US non-farm payrolls tomorrow, which are likely to have a significant impact on the Fed’s next policy decision in early November.

Sterling’s good morning turns into a bad afternoon

Sterling hit a two-month high against the US dollar this morning of $1.5937.

The pound was up again this morning versus a broadly weaker dollar as the greenback hit an eight and a half month low against a basket of currencies. The UK currency however soon gave up these gains remaining under pressure on concerns that further monetary easing may be required to support the UK economy. Tomorrow morning the Bank of England is expected to hold interest rates steady at 0.5%, however, it could be torn by a three way split. Adam Posen has set out his stance in calling for a fresh round of quantitative easing, whereas Andrew Sentence is likely to once again support a 0.25% rise in the interest rate. This split in opinion is indicative of the state of the UK and the global recovery.

The continued threat of QE in the UK is also leading sterling lower against the euro. Despite Moody’s downgrading Ireland’s credit rating today, the single currency is continuing to soar as investors shed dollar positions. The price is now at fresh 4 month lows, quickly heading toward €1.14.

In other news, the continual flow of capital from the ‘old world,’ where growth has stalled, to the new world has led to the South African rand hitting a two and a half year high against the US dollar. All this despite the country grinding to a halt after the world cup when strikes threatened to collapse the economy.

Tom Hampton
Analyst - Caxton FX

Sterling under more pressure against the euro

Sterling is giving up yesterday’s gains against the euro as it almost drops to an intraday low below €1.15.

Despite better than expected data from the UK services sector (August’s figure was a 16 month low), the pound is still struggling as investors look to pick up the single currency on last sessions dip. The EU currency is also being propped up by its performance against the US dollar with the market now as short on the greenback as it has been since 2008. Consequently, the pound is up for the third straight day against the greenback, hitting a high above $1.59 due to the ongoing speculation about the Fed’s next policy meeting.

In other news, over night, the Bank of Japan’s decision to lower their already nonexistent interest rate came as a shock taking the edge of the yen’s recent strength. On the same Pacific note, the Reserve Bank of Australia decided against raising interest rates to 4.75%. However, their 4.5% rate is still by far the most attractive in the G20 and the aussie’s sharp pull back today against its peers will present a good buying opportunity.

Keeping to the central bank theme, both the ECB and BoE are due to announce policy decisions on Thursday. The fear for sterling is that UK policymakers reveal a three way split, with a vote this month in favour of quantitative easing. Such an outcome is unlikely to sit well for the pound….

Tom Hampton
Analyst – Caxton FX

The US dollar continues to flounder

The greenback has managed to claw back early losses as it sank to $1.5874 against sterling, $1.3641 against the single currency and a two year low against the Australian dollar.

The ailing dollar fell this morning as sliding US treasury yields and mounting fears of a second round of quantitative easing pushed the currency lower. With a continuous stream of weak economic data and Q4 predicted to be very slow globally, it’s beginning to look like the only thing that may shift focus away from the greenback would be a European nation defaulting on its debt (which is looking increasingly unlikely).

Sterling felt the full force of panic over potential monetary easing measures as Adam Posen, a member of the MPC, declared that the Bank of England may even need to go as far as buying up corporate debt to guard from the double dip recession.

In other news, the House of Representatives is poised to pass legislation to pressure China to let its currency appreciate more freely. A brave move by the Americans as the Chinese Central Bank holds over a trillion dollars in notes alone. A sell off of dollars from China could send the US currency into freefall (at least the US export market might help them through these dark days?).

Tom Hampton
Analyst Caxton FX

Sterling’s intra-day rise and fall

Sterling had a fairly bullish morning to hit highs of €1.1809 and $1.5895, before taking a tumble against every one of its major counterparts after a member of the Monetary Policy Committee expressed his views for more quantitative easing.

The pounds rally began this morning as dollar selling continued after reported comments from a former Chinese central bank advisor said that a devaluation of the US currency was inevitable. The ascent gathered more momentum as the revised CBI (Core Business Index) figure showed consumer spending had risen sharply last month when a fall was expected. Positive results in the UK’s Current Account and last quarter’s GDP figure kept the upward trend going until................ BOOM! Adam Posen, a member of the MPC said “I think further monetary easing is needed.” He went on to outline that it should begin with additional gilt buying, before leading into full fiscal stimulus and corporate debt purchase to avoid a “Japanese style scenario.”

These bearish comments have since sent the UK currency to intraday lows of €1.1680 and $1.5722.

In other news, the euro continues its demolition of the US dollar to climb to a high of $1.3509, despite ongoing concerns over the health of the European banking industry (with Ireland the focus at present) and the eurozone’s ability to meet escalating sovereign debt.

A day of little movement

On a day with a near empty data calendar, sterling has managed to regain some of its losses against the euro to the more respectable level of €1.1750. Against the US dollar, the pound pushed higher still to a seven week high at $1.5850.

The biggest story of the day is the single currency hitting its highest level against the greenback since April, just touching over $1.35. Speculation that the Federal Reserve will take additional steps to ease monetary policy has helped to depress the dollar over the past fortnight. However, expect to see this price fall slightly as fresh concerns over the health of the European banking sector are beginning to emerge after the bailout of Anglo Irish Bank to the tune of a reported €34billion.

In other news, the Chinese Yuan climbed to its highest level since 1993 amid speculation that the government will allow the currency to appreciate faster than originally expected. The engine room of the world seems to not only be fuelling global economic activity, but it is now lending its hand at controlling the foreign exchange market!

Is the euro’s ascent sustainable?

The single currency has risen from $1.1923 against the US dollar at the start of June to hit a 5 month high today at $1.3463.

The overwhelming feeling in the market is that these gains are unsustainable amid concern that nations on the region’s periphery will default on their debts despite their surprising ability to raise funds at recent bond auctions.

The euro’s recent rally over the past few days has pushed it back into overvalued territory against a backdrop of deteriorating fundamentals. With Ireland’s GDP shrinking by 1.2% in Q2 and bond rates moving towards the ever important double digit range, a default from a PIIGS nation remains a distinct possibility. Germany cannot support a whole continent forever. Europe’s only saving grace is that each country’s government has implemented austerity measures to try and rectify the situation; their only hope is that with a tough Q4 coming up globally, everybody else has a tougher time than them.

Keen readers will remember that yesterday, at an FX trends seminar the underlying trend for Q4, potentially into next year, is Swissie strength. You will see today that the Swiss franc is at a two and a half year high against the greenback having smashed through several key resistance levels to be hunting down parity. Another currency approaching a level playing field with the US dollar is the Aussie dollar. With continuing strong growth from the tiger nations and the commodity boom, the Aussie is going from strength to strength.

Have a good weekend

Tom Hampton
Analyst Caxton FX

Has Sterling bottomed out?

My screen is finally awash with green today as sterling pulls back some of its losses from the past few days against all of its major counterparts except the Swiss franc.

The pound is back up near €1.1750 against the euro having sunk to a four month low of €1.1672. Further doubt over the longevity of the European economic recovery spread as poor data showed growth in the eurozone slowed in September, causing peripheral bond yield spreads to widen against German counterparts. Against the greenback, the UK currency did creep above $1.57 earlier in the day. The dollar is continuing its fall from grace with concerns over further rounds of quantitative easing and yet more poor data showing that the amount of jobless claims unexpectedly rose last week.

Be warned, Sterling’s rebound could be a momentary correction as the pound was heavily sold on Wednesday. The UK economy remains extremely vulnerable as the BoE alluded to with the possibility of a fresh monetary injection.

In further news, I spent my morning at a seminar on foreign exchange trends, which was as interesting as it sounds.... The major themes to report for the middle to long term are;
A) A double dip recession (depending on your definition) looks an almost certainty for the US, UK and Europe, while Asia looks to be the engine house for the global economy.
B) The unstoppable ascent of the Swiss franc. The lack of support for the traditional safe US dollar has led risk averse investors to the franc and the Japanese yen. However, with the BoJ’s intervention to depress their currency, the Swissie has become the hedge of choice for many. Great internal economic fundamentals and global uncertainty in Q4 look set to send the franc higher.
C) Those of you looking for a higher-yielding asset may look to the Aussie dollar. Some analysts are saying that it is near the end of its run. However, with commodity prices at an all time high, insatiable demand from China and a high interest rate that is looking likely to be moved even higher, it has every potential.

Tom Hampton
Analyst Caxton FX

Sterling goes into freefall against the euro

In a topsy-turvy session the pound is down today against all of its major counterparts except the greenback. The UK currency plunged through support levels to be down almost a percent on the day against the euro, currently trading around €1.1660. However, sterling did enjoy gains against the US dollar, hitting an intraday high of $1.5713.

Sterling’s abysmal performance this week was not helped by the dovish tone of the MPC minutes from the meeting on September 8th. The notes showed an 8-1 vote in favour of holding interest rates at a record low of 0.5% with Andrew Sentence repeating his lone call for a rate hike. Comments from members showed genuine concern about the growth outlook for the economy and the very real potential for more quantitative easing.

Duncan Higgins, Senior Analyst at Caxton FX said ‘Despite the consumer price index holding at 3.1% last month, the members see little change in the upside risk to inflation. As long as inflationary pressures are downplayed, it appears the door is likely to remain open to further quantitative easing, a prospect that will continue to weigh on sterling going forward.’

In other news, last night the Federal Reserve lowered the level at which it would intervene with what it is being called Quantitative Easing II (QE2) causing the market to choose the path of least resistance and sell the greenback.
Tom Hampton
Analyst Caxton FX

Sterling falls yet further

Sterling has fallen out of bed this morning hitting its head on the way down as it dropped out of its range against the euro, which had held for over a month, and also fell into the red against almost all of its major counterparts.

The pound hit a two month low against the euro as the latter rose against the US dollar to hit its highest level since June 8that $1.3147. The single currency found traction in the market after Ireland managed to secure €1.5billion of 2014 and 2017 bonds, while Greece sold €390million of 3 month T-bills. These auction results show a higher level of support for the eurozone despite the sovereign debt issues.

This afternoon sterling is looking like it may well stage a slight comeback as it currently trades up at €1.1835 from €1.1809 against the euro and $1.5545 up from the day’s low of $1.5505.

Sterling under pressure yet again

Against the euro, sterling remains at the lower end of its estimated range this month (between 1.19-1.2150) which is also near a seven week low after a raft of weak economic data confirmed a patchy UK recovery.

Bank of England data showed lending to UK businesses fell for the fifth straight month in July and data from Rightmove, also showed property asking prices in England and Wales fell for a third consecutive month in September.

Having had a relatively bullish few months after the general election, UK data seems to be softening as we move into what is going to be a very difficult Q4 globally. Fears are mounting over the looming austerity measures set out by the chancellor earlier this year and the damaging effects they could have on the UK economy next year.

In other news, despite the Bank of Japan and the Swiss central bank’s best efforts to de-value their respective currencies, they have both made considerable gains across the board. Could this prompt more severe reaction from both institutions?

Tom Hampton
Analyst-Caxton fx

Poor UK data sends sterling lower

Following a similar pattern to yesterday, the pound fell yet again this morning touching the same seven week low as yesterday against the euro. This followed data showing UK retail sales unexpectedly fell in August for the first time in 6th months, while strong demand at a Spanish auction lifted the single currency. Expect this pairing to not deviate to far from the €1.20 mark.

UK retail sales fell by 0.5% in August, surprising analysts who had forecast a modest increase of 0.3% after several months of solid growth. The data shows that UK consumers may be reining in spending ahead of substantial spending cuts planned by the government later in the year. Duncan Higgins, senior analyst at Caxton FX comments, “The data rather confirms fears that the UK economy is set to post a disappointing GDP figure for the third quarter. Food, fuel, clothing, and household good sales all made moderate declines in August as consumers tighten their pockets ahead of what is set to be a tough end to the year.”

Mervyn King, the Governor of the Bank of England in a speech yesterday reiterated the fact that if conditions continue to deteriorate further, the BoE are prepared to step into action with further quantitative easing.

In other news, a decision by the Swiss Central Bank to keep interest rates steady at 0.25%, along with a dovish statement has sent the franc lower against most of its peers. This could be a measure to devalue the currency after its meteoric rise of late.

Sterling rebounds from early losses

Sterling touched a seven week low against the euro and fell against the dollar after a surprise rise in claimant figures fed concerns over the UK economic outlook.
Data released this morning showed the number of people claiming unemployment benefit rose by 2,300 in August. It is the first rise since January and went against expectations of a fall of 4,100. The rise comes as public sector departments begin redundancy programmes ahead of this autumn’s spending review. The figures confirm that the UK recovery is still in the balance, and despite the persistently high level of inflation, the Bank of England remains poised to act if the recovery starts to waiver.
In other news, the Japanese yen has tumbled over 3% against both the US dollar and the pound after the Japanese government intervened by unilaterally selling the yen to curb gains that threaten the export-led recovery. This was the first time since 2004 that the government had intervened.

Euro takes a hit

It was beginning to look as though an unnerving quiet had descended over the eurozone, with market attention recently focused on the short comings of the US and UK economy. But the problems have resurfaced today with investors picking up on an article from the Wall Street Journal that questioned the viability of the so-called stress tests for European banks that were held over the summer.

The report has taken the single currency broadly lower today, slipping over a cent against the US dollar. To be honest, at $1.29, the euro was looking over bought and would’ve been an attractive level at which to sell. Rumours that even German banks may need up to €100bn in additional capital has further undermined the improved confidence in the euro.

Sterling is now sitting back at €1.20, which appears a relatively comfortable level for the pair at present.

Sterling starts the long climb back

Sterling is starting to claw back losses from the morning session when the pound fell against most of its peers, hitting a three week low against the euro following disappointing figures from the UK’s manufacturing industry.


A Chartered Institute of Purchasing and Supply Manufacturing PMI fell to 54.3 in August from 56.9 in July (a figure above 50 shows a growth in activity) its lowest level since November last year.

In other news, the US dollar extended its losses, pushing the euro up over 1% on the day, as positive data from Australia and China revived shaky equity markets and gave a boost to risk sentiment. The greenback also fell to its lowest level against the Swiss franc since December 2009.

Sterling at a 5 week low against the dollar

Despite last week’s the upward revision of the UK’s second quarter GDP to 1.2% from 1.1, sterling has suffered significant losses against the safe-haven currencies today. The pound is at a 5-week low against the US dollar as we see investors look for refuge due to on-going worries about the global economic recovery. Sterling fell as low as $1.5366 this morning after disappointing home sales figures from the US at the end of last week.


Of the safe-haven currencies, the Swiss franc seems to be the biggest winner today hitting a life time high against the euro (and 10-month high against sterling). The franc is up against the dollar and yen as continuing bad results from the states and government intervention to deflate the yen make the franc the low-yielding currency of choice.

In other news, going against the trend of safe-haven strength, the euro is up almost 1% against the pound as traders look to close out short positions at month end.

Sterling going for its second straight day of gains

Sterling is up against most of its major peers today with the dollar under pressure following yet more weak economic data, and the euro losing ground after Ireland suffered a credit rating downgrade from S&P.

The greenback lost ground following another round of disappointing housing figures for July as well as weaker than expected durable goods orders. In contrast to data from the peripheral eurozone countries, strong IFO figures from Germany gave the euro a brief lift. Positive CBI sales figures from the UK helped to send sterling higher.

In other news, the Japanese yen is losing more ground as speculation builds that the Japanese authorities will go beyond verbal intervention to curb the strength of the yen.

US GDP faces downward revision, stirring Fed into action

A report tomorrow is due to reveal a sharp downward revision to second quarter growth in the world’s largest economy.

The market is expecting to see US GDP (which is reported on an annualised basis) revised down significantly from an initial estimate of 2.4% to just 1.5%. This update will mark a low point amid a lengthening run of disappointing figures from the US economy and could be the catalyst for Fed intervention.

Duncan Higgins, senior analyst at Caxton FX comments, “The market has long been speculating that the Fed will need to add further stimulus to avoid falling back into recession. Positive news has been thin on the ground for some time and already estimates are suggesting that third quarter GDP is likely to be a lot lower if not negative. Recovery in both the housing and labour market has all but stalled and there is a good chance that a downward revision to GDP will spark further intervention from the Fed.”

World leaders have begun a meeting today in the US to discuss the notion of further monetary easing, with both the Japanese and eurozone economies also showing renewed recessionary pressures.

“Direct monetary stimulus could still be a few weeks away, but the conclusion of the meeting may well reveal that central banks are gearing up to take action. Hints of that nature are likely to cement the already risk adverse sentiment widespread in the market,” continues Higgins.

For the US dollar, the data tomorrow may be tricky to fathom. The traditional risk-on, risk-off scenario has broken down recently.

Higgins adds, “Investors are still trying to decide whether to sell the dollar on negative data on buy it up as a safe haven. The yen and Swiss franc have been preferable currencies of late. However, we expect the market to swing towards risk aversion, particularly if the Fed is not alone in a decision to extend quantitative easing measures.”

“At present the euro is trading above $1.27, but we doubt that the price will sustain these highs going into the weekend. Sterling also looks risky at its current level above $1.55. However, no revision is expected to the UK’s 1.1% second quarter growth rate and this should prevent the pound from sliding,” concludes Higgins.

Sterling re-coups early losses

The UK currency was near a one month low against the dollar after yesterday’s stock market move downwards.


Positive data from Germany showing the Ifo index hit a three year high has given the euro and pound a much needed boost against the dollar. However, as we saw in yesterday’s trading, these gains are expected to be short lived as lingering worries about the US slowdown and EU debt worries will ultimately allow safe haven currencies to shine through.

Paradoxically, the Japanese yen has fallen against most of its major peers, including falling from a fifteen year high against the US dollar, on speculation the Bank of Japan will intervene to keep exports more attractive.

MPC member’s comments turn sterling to the downside

MPC newcomer Martin Weale said in an interview in the Times that the UK faces a ‘real risk’ of a double dip recession. Although this sentiment is nothing new after the BoE’s re-alignment of growth expectation earlier this month, its reiteration, thin summer trading volumes and the markets hunger for safe-haven investment have sent sterling down against most of its peers.


Recently, the demand for ‘refuge’ currencies has brought the pound down from a nine month high against the greenback, with the price now back down at $1.54 and talk in the market that this bear run could take it as low as $1.50. Although sterling fell against the single currency today, we expect the UK currency to return to €1.53 in the near term as the eurozone’s debt crisis comes back into focus.

Positive retail sales data pushes sterling higher

Sterling found a boost for the second day after reports showed that British retail sales accelerated in July and the Public Sector Borrowing Requirement figure came in lower than expected.


UK retail sales figures in July came in at 1.1%, considerably higher than the expected number of 0.4%. Likewise, the government’s borrowing requirement came in at £3.2 billion, £2 billion lower than expected. Other data out today showed an increase in the number of unemployment claims in the US.

The pounds response to the positive data was instant, jumping almost a cent against both the euro and the dollar. The UK currency is hovering near its high of the day against the dollar, but has dropped back to sit in the mid 1.2150s against the euro following the latter’s rally against the greenback.

Sterling rebounds

Having started the day down, sterling bounced back this morning against most major currencies following the publication of the minutes from the Bank of England’s MPC meeting on the 4th of August. The minutes revealed an 8-1 vote in favour of keeping the interest rate unchanged at 1.0%, but also showed a unanimous vote to maintain the QE budget.


The pound had fallen to a three week low against the dollar amid speculation that the minutes could show a member of the MPC voting for an increase in the Bank’s quantitative easing programme. However, true to form Andrew Sentence called for a 25 basis point rise in interest rates for the third month running. Leaving the majority of the committee in agreement to keep the interest rate at 0.5% and maintain the bank’s £200billion asset purchase scheme.

A rise in the interest rate is not expected until Q2 2011, when a 50 basis points rise is currently forecast.

MPC minutes lift sterling from its lows

August Monetary Policy Committee minutes revealed a vote of eight to one in favour of maintaining the base rate of interest at 0.5%.

Andrew Sentance remained the sole dissenting voice among the ranks, voting for the third consecutive month to raise rates by 25 basis points. It was also a unanimous vote to keep the quantitative easing budget unchanged at £200 billion. This had been a point of speculation in the market over the past couple of days, with rumours suggesting that a couple of members saw conditions fit to extend the budget. However, the doves among the committee chose to sit on their hands when it came to the vote.

Duncan Higgins, senior analyst at Caxton FX commented, “The minutes have given the pound a slight nudge higher with rumours about further quantitative easing proving unfounded, at least for the time being. Clearly Andrew Sentance has failed to rally any further support for a rate rise. The general consensus remains that inflation doesn’t pose a significant enough threat to warrant to a change in policy.”

Following on from the recent Inflation Report, the minutes offer little in the way of fresh insight. The members of the committee appear content that current policy is ‘appropriate to balance the risks to the inflation outlook in the medium term.’

“Through the last couple of months it has become increasingly clear that the Bank is not yet ready to tighten policy, regardless of inflationary pressures. If anything, the minutes reveal a growing willingness to expand monetary policy should the balance of risks necessitate it,” continues Higgins.

In response to the minutes, the pound has moved comfortably back above 1.21 against the euro and $1.56 against the dollar.

Higgins concludes, “There is a sense that the market went too short on sterling in anticipation that at least one member of the Committee would’ve voted to extend QE. The market is now buying back sterling on the view that policy is set to remain unchanged for the near future.”

Sterling down across the board

Sterling is down on the day against all its major counterparts amid speculation on the publication of the MPC meeting minutes tomorrow morning. The CPI figure came in at 3.1%, well above the Bank of England’s target of 2%.


In other news the euro received a boost following solid demand for bond auctions in Ireland and Spain, which helped ease concerns about EU funding. Against the dollar, sterling has managed to claw back early losses to currently sit a third of a cent down due to higher demand for riskier currencies.

Despite today’s setback, we expect to see the UK currency strengthen against the euro over the coming weeks as fears over the EU’s sovereign debt issues return to focus. The regional debt issues should also send the single currency lower against the greenback, leaving sterling/dollar to trade in a relatively tight range between 1.56 and 1.60 in the medium term.

Refuge on top

In trading today the trend of safe haven currencies recouping losses from the past couple of weeks against their higher-yielding counterparts has continued.


The euro and sterling stayed lower against the dollar this morning as poor figures from the euro zone, Greece in particular, sent the currencies lower. The euro hit a three-week low of $1.2805, while the pound sunk as low as $1.5585, its lowest level since the start of the month. The dollar managed to claw back some of its losses from yesterday against the Japanese yen amid speculation that the Bank of Japan might intervene to deflate the currency.

A poor performance from global stock markets has helped the US dollar, Swiss franc and Japanese yen make considerable gains against their more volatile peers throughout the trading day.

Risk aversion returns

Following dovish statements from both the Fed and the BoE, there appears to have been as shift in risk sentiment a safe haven currencies make big gains on the day.


Ben Bernanke announced last night that the Fed would be taking measures to stimulate the US economy, however, it would not be going as far as full quantitative easing. Likewise, Mervyn King today revised the UK’s growth predictions down while raising inflation figure expectations. These bearish moves plus poor global economic data all weak have moved sentiment towards risk aversion, sending the dollar well over 1.5 cents up against both sterling and the euro on the day.

Worse than expected figures from the US could be elevating the Japanese yen (and to a lesser extent the Swiss franc) to the position of the world’s favoured safe haven as it has risen to a 15 year high against the dollar.

Sterling falls from a 6 month high

Sterling has fallen 1% on the day against the dollar after soft UK data this morning and traders trimming short dollar positions on uncertainty ahead of a Federal Reserve policy decision at 19:15(BST). Market players expect a dovish tone from the Fed and are divided as to whether it would go as far as a fresh round of full quantitative easing.

The greenback received an extra boost this morning as European and Asian stock markets fall on the back of fears that the global recovery is slowing. Although further stimulus has to an extent been priced in by the market, if the Fed do take steps in that direction, expect to see sterling recoup some of its losses and potentially advance beyond the $1.60 level.

Bank of England to upgrade inflation outlook 9.8.10

Sterling has recouped its losses from the end of last week making up ground against the euro and US dollar.

A Sunday Times article (which did not cite a source) at the weekend said that the BoE is likely to revise its forecast for inflation over the next 18 months, with the upward pressures failing to subside. This contradicts the BoE previous forecast that inflation would slow to the target level of 2%.

The expectation that Fed chairman Ben Bernanke is to announce another round of quantitative easing is growing, as economic activity slows in the US. This coupled with rising pressure on the BoE to raise rates, could see sterling sail through the $1.60 barrier.

Sterling buoyed following Bank decision

As was widely expected the Bank of England (BoE) left interest rates unchanged at 0.50% again this month and chose not to extend the quantitative easing programme beyond its £200b limit.

The decision has given Sterling a slight lift to bring it away from its day lows, which were hit following Barclays announcement of “disappointing” second quarter profits.

BoE Governor Mervyn King reiterated recently that it may be a “considerable” time before the benchmark rate returns to “normal.” Although today’s announcement offers few surprises, minutes to the meeting, due to be released on the 18th August, could offer up some interest with a split widening between the Monetary Policy Committee (MPC) members about the danger posed by rising prices.

Duncan Higgins, senior analyst at Caxton FX comments, “The views within the MPC are clearly divided. Andrew Sentence is expected to have voted for an interest rate rise for now the third month in a row. However, despite the UK’s strong rate of growth in the second quarter, there is little to suggest that he will find any support from his colleagues. King appears happy to tolerate the comparatively high level of inflation in order to safeguard the recovery.”

The rhetoric at present is still not pointing to an interest rate rise until mid 2011 at the earliest. This is based on the fact that the possibility of adding further monetary stimulus is still very much on the table.

“With budget cuts implemented and the debt crisis in the eurozone, the UK economy is unlikely to offer up the same level of growth in the third quarter as it did in the second. In fact economic figures for July already reflect a slight slowdown in activity. In the short term, the Bank can do little about inflation and so policymakers are likely to continue taking a wait-and-see approach whilst the outlook remains so uncertain,” continues Higgins.

The reaction in the currency markets has been relatively limited with market players awaiting the policy decision and accompanying statement from the European Central Bank later this afternoon.

Higgins says, “Sterling has recovered from its day low against both the euro and the US dollar following the announcement, but progress remains slow. Having neared $1.60 on Wednesday, the pound is unlikely to push through that level amid caution ahead of Friday’s US non-farm payroll figures.”

At present Sterling remains range bound between 1.20 and 1.21 against the euro, and is trading just above 1.59 against the US dollar.

Sterling stalls ahead of ECB and BoE rate statements tomorrow.

Sterling has managed to stay above the €1.20 and $1.59 figures for the day’s session so far.

Sterling’s bull run has stalled today after some better than expected employment data from the US gave the dollar a boost. The pound had its longest winning streak for 18 years as it gained against the dollar for the past nine days.

Against the euro, the pair are trading sideways as both are suffering at the hands of the greenback. The pull back comes as the market awaits the Central Bank’s rate decision which is published tomorrow at 12:45 BST. The single currency remains at a four month high, just above $1.32.

Sterling’s rise

Sterling surpassed expectations on Monday to reach a six month high of $1.59 against the dollar in London.

A rise of 2.36 cents was spurred by investors betting that growth in the UK would outpace that in the US, which some economists fear is only months from slipping back into recession.

This morning sterling is further up against the dollar trading at $1.5925 and edging ever closer to the €1.21 against the euro.

There seems to have been a genuine shift in risk appetite in the market as the euro/dollar rate hit a high of $1.3179 yesterday, showing that concerns over the euro sovereign debt crisis may have been papered over recently. We expect to see a pullback between this pairing as cracks will inevitably start to re-appear in Europe’s finances.

Caxton FX comments on UK Emergency Budget

Head to Interactive Investor to listen to Duncan Higgins, senior analyst at Caxton FX, comment on George Osborne's inaugral Budget.

Caxton FX launches dedicated currency report for NGOs

Non-Governmental Organisations (NGOs), who operate overseas, regularly require ‘exotic’ currencies whose movements are rarely publicised.

Caxton FX, foreign exchange and payments specialist, understands the importance for NGOs managing risk within the volatile currency markets. Daily analysis of ‘hard’ currencies such as the US dollar and euro are readily available and although useful, NGOs, such as charities, often need information regarding softer currencies.

According to a report by “Stamp Out Poverty”* between £20 - £50,000,000 is being lost by UK Charities by the method they transfer money overseas. Regular analysis of currencies across the developing world could be used as a tool to help make informed decisions regarding currency transfers.

Caxton FX is pleased to announce the launch of their NGO Currency Report this week. The inaugural report, which forecasts over 30 world currencies during a 6 month period, provides a clear and concise overview of each currency to aid budgeting and planning.

To join the distribution list or for further information, send an email to charities@caxtonfx.com


* “Missing millions” http://www.stampoutpoverty.org/?lid=11155

Sterling knocked off its highs by UK Inflation

The headline rate of UK inflation has slowed, dipping to 3.4%, according to data released this morning.

This figure is marginally below market forecasts, having hit a 17-month high in April. As a result, there has been a knee-jerk sell off in the pound as the prospects for an early interest rate rise ebb further away. The Bank of England has been persistent in holding its line that inflation will begin to fall, despite its continued rise over the past six-months. Today’s figure will certainly come as a relief for the Governor, whose stance was becoming increasingly undermined.

Duncan Higgins, senior analyst at Caxton FX explains, “Mervyn King can perhaps now breathe slightly easier. Pressure was mounting, and officials were beginning to speak out about the unnerving rate at which inflation was rising. Today’s figure may be the turning point that the Governor was looking for and inflation may now begin to steadily fall back.”

The VAT rise back in January had been one of the leading factors behind the rise in prices. With its influence now coming to an end, spare capacity in the economy is putting downward pressure on inflation.

“Temporary factors driving prices higher are now beginning to fade and spare capacity should become increasingly important, helping to put inflation on a downward path,” continues Higgins.

The troubles in Europe will also weigh on prices. “As economic growth slows in the eurozone, demand for UK exports will weaken, driving prices back down.”

Although the headline remains some way above the 1.0% leeway afforded to the Bank, sterling has come off its highs.

Duncan Higgins concludes, “There is now likely to be far less pressure to prematurely raise interest rates. Headline inflation still has some way to fall before meeting the 2.0% target, but it appears that factors applying upward pressure are now subsiding.”

The pound has weakened to sit at €1.2050, and has dropped back from its intra-day high to trade marginally above $1.47 against the US currency.

Sterling holds steady as UK growth forecasts are revised

The newly established Office for Budget Responsibility (OBR) announced a downgrade of potential economic growth in 2011, within their inaugural report released this morning.

Back in March this year, the Labour government had forecast growth of between 3.0 – 3.5% next year. The OBR now predicts that the economy will expand by just 2.6% and have revised down their growth forecast for this year, with an estimate of just 1.3%, against the former Chancellor Alistair Darling’s original estimate of 3.0%.

Duncan Higgins, senior analyst at Caxton FX commented, “The reaction in the market has not been too pronounced with the market widely expecting a downward revision. The figures are reflective of the upcoming budget cuts, which are likely to weigh on economic activity for some time.”

The OBR also gave a renewed forecast of the UK’s public deficit, estimating that it will fall to 10.5% of GDP in the 2010-11 financial year, down from Labour’s 11.1% estimate.

“The lower deficit forecast is certainly a positive, but the market is waiting to see exactly where the cuts will fall before reacting. Sterling has crept higher against the dollar in the wake of the report, but direction is still largely being dictated by movements in the equity markets,” continues Higgins.

At present the pound is trading back near a one-month high against the US currency, back above $1.47. Against the euro, the pound is holding station just above €1.20.

Sterling brushes off weak production figures

Figures released from the UK manufacturing industry this morning have disappointed, with production down 0.4% in April, undershooting market expectations.

Although the data missed forecasts by a considerable margin, the year-on-year rate remains in positive territory. UK industrial production mirrored this figure, also disappointing expectations and failing to reflect the positive numbers seen from the Purchasing Managers’ indices recently. Reaction to this latest economic news has been rather unpronounced within the markets, with investors looking at the equity markets to dictate direction.

Duncan Higgins, senior analyst at Caxton FX says, “These figures will serve as a stark reminder that the UK economic recovery is still far from assured. Although the majority of UK fundamentals are still trending upwards, the upcoming budget measures are going to provide a significant hurdle.”

Sterling has come off its highs following the release, but remains holding around €1.21.

“The pound’s foundation above €1.20 remains intact, with data continuing to have only a minimal impact on the currency markets. Investors remain focused on wider developments from the eurozone at present, which is keeping sterling on a solid footing,” comments Higgins.

In spite of the weak figures today, we expect that sterling could progress higher over the short term.

Duncan Higgins concludes, “The euro is still suffering from a severe lack of market confidence, and despite the efforts of ECB President Trichet to calm fears, investors remain sceptical. The single currency can only achieve brief rallies, and these are predominantly based on profit taking as opposed to any real shift in sentiment.”

At present sterling is trading at €1.21, and is around half a cent down on the day against the US dollar at $1.4650.

Bank of England hold interest rate at record low

Coming as little surprise to investors, the Bank of England announced that interest will remain unchanged at 0.5%, alongside the level of quantitative easing holding at £200 billion.

With a Budget due in a little less than two weeks, the Bank is expected to remain on the sidelines. They are likely to wait and see what impact the fiscal tightening has on the economy before revising their latest projections.

Duncan Higgins, senior analyst at Caxton FX says, “With spending cuts and tax rises just around the corner we are unlikely to see a change in interest rates this year. The fear is that the measures the government is due to implement could destabilise the recovery and raising rates prematurely would exacerbate the problem.”

In the past few months pressure has been building that the rising level of inflation would force the Bank to intervene and raise rates, but these pressures are easing.

“The Bank has stubbornly stuck to its line that inflation will fall below the 2.0% target in the medium term, despite growing dissent. Increasingly, factors do point to inflation subsiding. Troubles in the eurozone are showing little sign of easing and falling demand from the continent will put downward pressure on prices. This will be compounded by weaker domestic demand as the full impact of tax increases and spending cuts is felt,” comments Higgins.

The markets have shown little reaction to the Bank’s decision and sterling is continuing to steadily appreciate ahead of the ECB’s press conference this afternoon.

Duncan Higgins continues, “The ECB is particularly pressured at the moment and internal conflicts are not helping. Officials will be keen to give speculators as little ammunition as possible, and we expect the information provided to be as vague as they can justifiably get away with.”

At present sterling is trading back near its 18-month high hit on Monday, but could move higher if Trichet fails to downplay growing fears about the eurozone’s financial stability.

How will the government’s proposed spending cuts impact sterling?

David Cameron paves the way for ‘painful cuts ahead that will be unavoidably tough’, with details in the emergency Budget on June 22nd.

The impact of any proposed measures has raised concerns about the prospects for the UK economy, particularly considering the fragile nature of the recovery. This could have a distinct effect on sterling as investors show caution against buying into the currency.

“The pound’s rally against the euro could come to an abrupt halt should the spending cuts prove to be too much too soon. The government needs to find a fine balance: one that sufficiently appeases the market’s desire to see the deficit cut, but falls short of strangling the fledgling recovery,” comments Duncan Higgins, senior analyst at Caxton FX.

So where does this leave sterling over the longer-term?

“Through the summer, we expect to see sterling’s rally against the euro continue, albeit at a more gradual pace than we have seen recently. Fears about the eurozone banking crisis are failing to subside and investors will be inclined to continue selling the currency, particularly as most eurozone officials seem apathetic, even content, with the euro’s slide,” says Higgins.

Duncan Higgins continues, “Into the longer term sterling’s strength could be undermined as the UK’s economic figures begin to reflect the spending cuts. April’s Budget forecast for economic growth in 2010 and 2011 could well prove to be optimistic in light of new government policy. The Bank of England, in order to shield the economy against the cuts, will also be far less inclined to raise interest rates, seeing an increased pressure on sterling.”