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.
Tuesday 31 August 2010
Thursday 26 August 2010
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.
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.
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.
Wednesday 25 August 2010
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.
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.
Tuesday 24 August 2010
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.
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.
Thursday 19 August 2010
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.
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.
Wednesday 18 August 2010
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.
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.”
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.”
Tuesday 17 August 2010
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.
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.
Thursday 12 August 2010
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.
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.
Wednesday 11 August 2010
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.
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.
Tuesday 10 August 2010
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.
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.
Monday 9 August 2010
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.
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.
Thursday 5 August 2010
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.
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.
Wednesday 4 August 2010
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 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.
Tuesday 3 August 2010
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.
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.
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