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.