The pound weakened slightly against the euro yesterday as more positive news from the eurozone increased investor appetite for the single currency. A report released by the European Commission yesterday showed improved economic sentiment in the region, as the index rose from 64.7 points in March to 67.2 this month, much better than the 65.2 points analysts had predicted. Moreover, European equity markets rose following solid first-quarter profits of £2.26 billion from Royal Dutch Shell and £1.9 billion from Spanish banking giant Santander, which further improved appetite for the single currency as investors speculated that the a tentative economic recovery in the eurozone may be underway.
However, the euro’s gains were capped yesterday as better-than-expected retail sales data released by the CBI on Tuesday improved investor sentiment that the UK may be coming out of recession. In addition, news of strong demand at a UK gilt auction earlier this week, the first since UK Chancellor Alistair Darling announced a record high £220 billion issuance for the coming fiscal year in the budget last week, buoyed investor mood. Finally, speculation surrounding what measures the European Central Bank intends to implement at their next policy meeting hampered the euro’s gains, as investors in the eurozone speculated that the bank could announce a quantitative easing program similar to the one that appears to be working in the US. Indeed, the US Fed last night voted to leave their stimulus measures unchanged, sighting tentative “green shoots” in the global economy, therefore making it increasingly likely the ECB will follow suit to get the region out of recession. As a result, continued speculation over what the bank will decide, together with positive economic data released on both sides of the English Channel, capped the single currency’s gains against sterling, although it still finished the day up at 1.1122.
There are a couple of pieces of important economic data out in the eurozone and UK today. In the eurozone March’s Unemployment Rate is released at 10.00 BST, whilst in the UK Year-on-Year Nationwide House Prices data for March is due today.
Thursday, 30 April 2009
Pound strengthens against the US dollar on improved risk appetite
The pound strengthened against the dollar yesterday as risk aversion eased following a two-day flight to safety because of swine flu. Although the first death from the virus outside Mexico was confirmed yesterday morning, better-than-expected CBI retail sales data and solid demand at a UK gilt auction, both announced on Tuesday, eased investor worries that an economic recovery may yet be some way off. The auction of UK gilts was the first since UK Chancellor Alistair Darling’s budget announced last week, in which he announced a record issuance of £220 billion for the coming fiscal year. Also driving sterling’s gains yesterday morning was surprisingly positive consumer confidence and home price data released in the US on Tuesday, again adding to improved market sentiment and extending sterling’s gains in the morning.
However, far worse-than-expected US GDP data released at lunchtime clawed back some of sterling’s early gains. It revealed an annualised contraction in the US economy of 6.1% for the first three months of 2009, far worse than the 4.9% analysts had predicted. A 30% fall in exports was the primary driver behind the contraction, the biggest decline for 40 years, as the global recession reduced worldwide spending. The figure also represented the third consecutive quarter of contraction of the US economy, the first time there has been three in a row since 1975. Nevertheless, despite sterling losing some of its early gains, it remained in positive territory, buoyed by the strong performance of equity markets. The FTSE 100 finished the day up 93.9 points at 4189.59. Throughout the day, continued speculation over what measures the Fed would announce following their policy meeting slightly affected the market, although most analysts agreed that no major new initiatives would be announced. As it turned out, they were right, as the central bank kept interest rates on hold at virtually zero and continued as planned with its quantitative easing program, citing some tentative signs of economic recovery and strong equity market performance as the basis for their decision. The decision served only to further strengthen the pound’s position against the greenback, as investors speculated that there could be light at the end of the tunnel. Sterling finished the day at $1.4764.
In early trading today sterling has continued its rise against the greenback, as investors continue to take positive news from the Fed’s interest rate decision. There are lots of important announcements out today in both the US and the UK. In the former, the Month-on-Month and Year-on-Year Core Personal Consumer Expenditure Prices Index is out at 13.30 BST, as is March’s Personal Spending and Personal Consumption Expenditure Deflator data. Finally, at 14.45 BST, the Chicago Purchasing Managers’ Index for April is released. In the UK, Year-on-Year Nationwide House Prices data for March is due today.
However, far worse-than-expected US GDP data released at lunchtime clawed back some of sterling’s early gains. It revealed an annualised contraction in the US economy of 6.1% for the first three months of 2009, far worse than the 4.9% analysts had predicted. A 30% fall in exports was the primary driver behind the contraction, the biggest decline for 40 years, as the global recession reduced worldwide spending. The figure also represented the third consecutive quarter of contraction of the US economy, the first time there has been three in a row since 1975. Nevertheless, despite sterling losing some of its early gains, it remained in positive territory, buoyed by the strong performance of equity markets. The FTSE 100 finished the day up 93.9 points at 4189.59. Throughout the day, continued speculation over what measures the Fed would announce following their policy meeting slightly affected the market, although most analysts agreed that no major new initiatives would be announced. As it turned out, they were right, as the central bank kept interest rates on hold at virtually zero and continued as planned with its quantitative easing program, citing some tentative signs of economic recovery and strong equity market performance as the basis for their decision. The decision served only to further strengthen the pound’s position against the greenback, as investors speculated that there could be light at the end of the tunnel. Sterling finished the day at $1.4764.
In early trading today sterling has continued its rise against the greenback, as investors continue to take positive news from the Fed’s interest rate decision. There are lots of important announcements out today in both the US and the UK. In the former, the Month-on-Month and Year-on-Year Core Personal Consumer Expenditure Prices Index is out at 13.30 BST, as is March’s Personal Spending and Personal Consumption Expenditure Deflator data. Finally, at 14.45 BST, the Chicago Purchasing Managers’ Index for April is released. In the UK, Year-on-Year Nationwide House Prices data for March is due today.
Euro strengthens on improved risk appetite
The euro strengthened against the dollar yesterday, as risk appetite returned to markets following two days of investor flight to safe-haven currencies. Although much worse-than-expected annualised US GDP figures for the first three months for 2009 capped some of the single currency’s gains early in the afternoon, the euro remained strong throughout the day to finish the day up at $1.3271. Led by the biggest fall in US export demand in 40 years, a staggering 30%, the US economy contracted by 6.1% in the first quarter of this year. Nevertheless, appetite for the perceived riskier currencies remained in the market, buoyed by better-than-expected consumer confidence and house price data released in the US on Tuesday. The euro’s gains were also aided by an encouraging survey released by the European Commission, which showed that economic sentiment in the region improved to 67.2 points in April from 64.7 in March, much higher than the 65.2 points analysts had predicted.
Investor appetite for the riskier euro came despite news of the first death outside of Mexico from swine flu and also reports of more suspected cases around the world. After two days of swine-flu related falls, European equity markets rose yesterday as positive economic data, together with a feeling that there may have been an overreaction to the swine flu outbreak, eased investors’ nerves, further extending the euro’s gains against the greenback. In addition, speculation surrounding what the Fed would announce last night following their two-day monetary policy meeting affected markets, although, as expected, the US central bank kept their interest rate on hold at virtually zero and promised to continue with their purchasing of long-term government debt to expand the money supply as planned – a process known as quantitative easing. Investors took this news positively, concluding that the central bank’s current policies must be tentatively getting the US economy out of recession, and therefore they continued to buy into the euro yesterday evening.
In early trading today the euro has continued its rise against the greenback, as risk appetite improved. However, there are some big announcements in both the eurozone and America today which could move the market. In the US, March’s Personal Spending and Personal Consumption Expenditure Deflator data is released at 13.30 BST, as is the Month-on-Month and Year-on-Year Core Personal Consumer Expenditure Prices Index. In addition, at 14.45 BST, April’s Chicago Purchasing Managers’ Index is out. In the eurozone, the Unemployment Rate for March is released by the European Monetary Union at 10.00 BST.
Investor appetite for the riskier euro came despite news of the first death outside of Mexico from swine flu and also reports of more suspected cases around the world. After two days of swine-flu related falls, European equity markets rose yesterday as positive economic data, together with a feeling that there may have been an overreaction to the swine flu outbreak, eased investors’ nerves, further extending the euro’s gains against the greenback. In addition, speculation surrounding what the Fed would announce last night following their two-day monetary policy meeting affected markets, although, as expected, the US central bank kept their interest rate on hold at virtually zero and promised to continue with their purchasing of long-term government debt to expand the money supply as planned – a process known as quantitative easing. Investors took this news positively, concluding that the central bank’s current policies must be tentatively getting the US economy out of recession, and therefore they continued to buy into the euro yesterday evening.
In early trading today the euro has continued its rise against the greenback, as risk appetite improved. However, there are some big announcements in both the eurozone and America today which could move the market. In the US, March’s Personal Spending and Personal Consumption Expenditure Deflator data is released at 13.30 BST, as is the Month-on-Month and Year-on-Year Core Personal Consumer Expenditure Prices Index. In addition, at 14.45 BST, April’s Chicago Purchasing Managers’ Index is out. In the eurozone, the Unemployment Rate for March is released by the European Monetary Union at 10.00 BST.
New Zealand dollar weakens after rate cut
The New Zealand dollar weakened against the pound overnight and fell to a 7 week low against the aussie, after the Reserve Bank of New Zealand cut interest rates by 50 basis points, to a historic low of 2.5 percent. The central bank indicated in its statement that it would keep rates low until 2010 to help fight the country's deep recession. With expectations that Australian interest rates are nearing their bottom, the aussie yield attraction is now becoming much more attractive than the kiwi's. This essentially means foreign investors looking for riskier assets may start to defer to the aussie instead of the kiwi.
Australian dollar strengthens to 12-year high against the pound
The Australian dollar gained back ground against sterling yesterday, climbing to a 12-year high as a more optimistic tone in markets triggered greater demand for riskier assets. This was largely driven by the US central bank indicating the economic outlook was slightly better, coupled with signs of improved performances from banks. This was supported by strong results from Spanish banking giant Santander, which also owns a number of UK based banks including Abbey. The aussie also gained further support from improving metal prices, as fears have for now subsided over the impact of Swine flu. However, this may still come back into the equation if the pandemic starts to worsen dramatically.
Wednesday, 29 April 2009
Federal Reserve's interest rate decision takes a back seat
Although ordinarily a big news event for investors, today’s interest rate decision by the Fed has been largely overshadowed this week by a variety of other stories. Ongoing concern surrounding the pig flu outbreak and investor jitters over big bank "stress tests", not to mention the upcoming assessment of the Obama administration’s first 100 days in office, has meant the Fed’s interest rate decision at 19.15 BST this evening has taken a back seat.
CaxtonFX analysts believe the Fed will keep interest rates on hold at the current range of 0% - 0.25% because, since their last meeting in March, there has been a mini-revival in equity markets. The central bank's decision to pump $1.2 trillion into the American economy by buying government debt has gone some way to boost lending, and is one of the reasons why many American banks were able to report better-than-expected first quarter results earlier this month. As a result, we believe this month’s meeting is more likely to be used to examine the effectiveness of policies already in place, rather than to announce any further rate cuts or new initiatives.
CaxtonFX analysts believe the Fed will keep interest rates on hold at the current range of 0% - 0.25% because, since their last meeting in March, there has been a mini-revival in equity markets. The central bank's decision to pump $1.2 trillion into the American economy by buying government debt has gone some way to boost lending, and is one of the reasons why many American banks were able to report better-than-expected first quarter results earlier this month. As a result, we believe this month’s meeting is more likely to be used to examine the effectiveness of policies already in place, rather than to announce any further rate cuts or new initiatives.
Pound continues to be undermined by swine flu outbreak
The pound weakened over a cent against the euro yesterday, as concerns over the severity of swine flu hit UK equity markets. The FTSE 100 closed down 70.61 points yesterday, or 1.7%, as travel, leisure and holiday stocks in particular took a pounding. Having suffered significant falls on Monday, British Airways, Carnival, Thomas Cook and TUI Travel all endured further losses yesterday, dropping between 1.7% and 5.4%. The pound started the day up against the euro, however, as better-than-expected retail survey results released by the Confederation of British Industry gave investors hope that a recovery may be underway. Their Distributive Trades Survey went positive for the first time this year, rising to +3 in April from -44 in March. The reading was the highest since January 2008 and was much better than the -40 many analysts were predicting, although they did admit the figures may be slightly skewed because of later Easter weekend this year. Also spurring the pound’s early gains yesterday was the news of strong demand at a UK gilt auction, the first since UK Chancellor Alistair Darling’s announcement last week that issuance would reach a record high of £220 billion for the fiscal year 2009/10.
However, sterling’s early gains were eventually wiped out as continued speculation surrounding the severity of the swine flu outbreak, as well as its potential global economic impact, weighed on equity markets. With Britain’s economy so dependent on banking and financial services, economists’ estimates that the world could lose up to $3 trillion in lost output should the outbreak turn into something more serious, would spell disaster for the country’s economic recovery. As a result, the euro strengthened further against the pound throughout yesterday afternoon, as the first case of the virus was confirmed in the UK and the death toll in Mexico rose to over 150.
In early trading today, the pound has recovered some of the losses it suffered yesterday, as speculation about how the European Central Bank intends to get the eurozone out of recession at their next policy meeting continued. An interest rate cut to 1% now appears increasingly likely, but whether the central bank intends to embark on a quantitative easing plan like the Fed and the Bank of England remains to be seen.
There are a few important pieces of data due in the eurozone this morning, with April’s Economic, Consumer and Industrial Confidence data all due at 10.00 BST from the European Monetary Union. The EMU is also set to release its Year-on-Year M3 data for March at the same time, a measure of the money supply released by the ECB.
However, sterling’s early gains were eventually wiped out as continued speculation surrounding the severity of the swine flu outbreak, as well as its potential global economic impact, weighed on equity markets. With Britain’s economy so dependent on banking and financial services, economists’ estimates that the world could lose up to $3 trillion in lost output should the outbreak turn into something more serious, would spell disaster for the country’s economic recovery. As a result, the euro strengthened further against the pound throughout yesterday afternoon, as the first case of the virus was confirmed in the UK and the death toll in Mexico rose to over 150.
In early trading today, the pound has recovered some of the losses it suffered yesterday, as speculation about how the European Central Bank intends to get the eurozone out of recession at their next policy meeting continued. An interest rate cut to 1% now appears increasingly likely, but whether the central bank intends to embark on a quantitative easing plan like the Fed and the Bank of England remains to be seen.
There are a few important pieces of data due in the eurozone this morning, with April’s Economic, Consumer and Industrial Confidence data all due at 10.00 BST from the European Monetary Union. The EMU is also set to release its Year-on-Year M3 data for March at the same time, a measure of the money supply released by the ECB.
Pound finishes slightly down against the US dollar
The pound weakened slightly against the dollar yesterday, as concern about the severity of the swine flu outbreak reduced investor risk appetite. Investor jitters over the potential economic impact of a global pandemic were exacerbated yesterday morning following comments by the deputy chief of the World Health Organisation, Keiji Fukuda, who said the virus could no longer be contained and countries should focus on mitigating its effects. His remarks resulted in widespread falls in European equity markets, with travel, holiday and leisure stocks all taking a particular hit. The news that holiday operators Thomson and First Choice have cancelled all their flights to Mexico due to the outbreak only increased investor appetite for safe-haven currencies like the dollar. This risk aversion was further aided by concerns about the US banking sector’s capital needs, as an article in The Wall Street Journal claimed that Citigroup and Bank of America may need to raise more capital based on early results of government “stress tests” on banks. The formal results of the tests are not due until May 4th, however early indications show the banks need to fill capital shortfalls so as not to rely on any more government funds. Both Bank of America and Citigroup have already received $45 billion bailouts from the US taxpayer, and could require more according to preliminary results of the tests. A steady stream of dire financial news from the banking sector has battered the pound in recent months, given the economy’s dependence on financial services, and consequently the possibility that more bad news may be round the corner meant investors looked to sell sterling to reduce risk. Elsewhere, news that BP’s first quarter profits fell by 62% to £1.64 billion because of low oil prices did little to ease risk aversion.
Later in the day, data released in the US showing prices of single-family homes dropped by 18.6% in February from a year ago received mixed reactions from the market. Although the figure remains negative, it did indicate that the pace of decline may have slowed and therefore the US property market could be bottoming out. The Standard & Poor’s/Case-Shiller Home Price Index also showed the composite index of 20 metropolitan areas fell 2.2% in February from the previous month. This news induced a brief rally for the pound, aided by better-than-expected Consumer Confidence data released by the Conference Board in the US. April’s figure of 39.2 was much better than the 29.8 analysts were predicting and also showed a positive improvement on the 26.9 registered in March. Sterling’s afternoon recovery was also aided by much better-than-expected UK retail sales figures released by the Confederation of British Industry. Its Distributive Trades Survey showed a rise to +3 in April from -44 in March, the first positive reading in a year and much better than the -40 analysts had predicted. The figure gave investors renewed hope that the UK may be tentatively coming out of recession, although the CBI did admit the figures could be slightly misleading because of a later Easter weekend this year.
Sterling’s gains were eventually wiped out late in the day, however, as news that the swine flu virus had spread as far afield as Israel and New Zealand weighed on equity markets. The FTSE 100 closed the day down 1.7% at 4096.4, with the pound finishing slightly down against the dollar at $1.4632.
There are some very important pieces of data out in the US today. At 13.30 BST, annualised American GDP data is released, whilst at 19.15 BST the Federal Reserve’s interest rate decision for April is due. Also at that time, The Federal Open Market Committee’s Minutes will be released to the market, with investors eyeing them closely to try and determine where future US interest rate policy is headed. CaxtonFX analysts predict the Fed will not change interest rates from their current 0.25% level, however they may announce an expansion of their quantitative easing program.
Later in the day, data released in the US showing prices of single-family homes dropped by 18.6% in February from a year ago received mixed reactions from the market. Although the figure remains negative, it did indicate that the pace of decline may have slowed and therefore the US property market could be bottoming out. The Standard & Poor’s/Case-Shiller Home Price Index also showed the composite index of 20 metropolitan areas fell 2.2% in February from the previous month. This news induced a brief rally for the pound, aided by better-than-expected Consumer Confidence data released by the Conference Board in the US. April’s figure of 39.2 was much better than the 29.8 analysts were predicting and also showed a positive improvement on the 26.9 registered in March. Sterling’s afternoon recovery was also aided by much better-than-expected UK retail sales figures released by the Confederation of British Industry. Its Distributive Trades Survey showed a rise to +3 in April from -44 in March, the first positive reading in a year and much better than the -40 analysts had predicted. The figure gave investors renewed hope that the UK may be tentatively coming out of recession, although the CBI did admit the figures could be slightly misleading because of a later Easter weekend this year.
Sterling’s gains were eventually wiped out late in the day, however, as news that the swine flu virus had spread as far afield as Israel and New Zealand weighed on equity markets. The FTSE 100 closed the day down 1.7% at 4096.4, with the pound finishing slightly down against the dollar at $1.4632.
There are some very important pieces of data out in the US today. At 13.30 BST, annualised American GDP data is released, whilst at 19.15 BST the Federal Reserve’s interest rate decision for April is due. Also at that time, The Federal Open Market Committee’s Minutes will be released to the market, with investors eyeing them closely to try and determine where future US interest rate policy is headed. CaxtonFX analysts predict the Fed will not change interest rates from their current 0.25% level, however they may announce an expansion of their quantitative easing program.
US dollar weakens as better consumer confidence data helps risk appetite
The dollar weakened against the euro yesterday due to a better than expected consumer confidence report and more positive house price data. This resulted in an increase in investors’ risk appetite, thus weakening the dollar as the main safe haven currency. The euro benefited from US data showing a surprise jump in consumer confidence in April, in the most positive reading of the US Conference Board index since last November. The index, based on a representative sample of 5,000 US households, leapt to 39.2, up from an amended 26.9 in March. Most analysts had predicted a more modest rise to 29.9. Other data also showed an easing of the pace of decline in home prices in major US cities in February. The Standard & Poor's/Case-Shiller report was consistent with other data suggesting stabilisation in the US housing market after two horrific years.
The euro also rose on the back of comments made by ECB board member Lorenzo Bini Smaghi, who indicated that quantitative easing measures have not been conclusively determined as of yet, and it may be that the ECB only cuts interest rates by 25 basis points at their next meeting on May 7, as opposed to also introducing non conventional measures to combat the recession.
Nevertheless, the dollar’s losses were limited due to continuing fears regarding the global outbreak of swine flu. Moody’s stated yesterday that the global macroeconomic impact of the flu could reduce global GDP by £225.6bn and the outbreak also adversely affected the FTSE 100, which closed down 1.7 percent at 40996.4. Additionally, concerns have arisen regarding stress tests for major US banks. It was leaked ahead of the official release that Citigroup and Bank of America are likely to be forced to boost their capital levels in advance of the stress tests, so a further bailout may be required. The tests themselves are due to be announced on May 4 and are designed to conclude whether banks can withstand further grim economic activity without collapsing.
Investors are now awaiting the outcome of a two-day meeting of the US Federal Reserve this evening, where monetary policymakers are expected to keep boosting the supply of cheap credit to the ailing US economy since slashing its base interest rate to virtually zero. Also on the US calendar is the government's first estimate of gross domestic product for the first quarter, expected to show an annualised 4.9 per cent contraction after the fourth-quarter drop of 6.3 per cent.
Other announcements taking place in the US today include MBA Mortgage Appplications. In the eurozone economic confidence, consumer confidence and industrial confidence will be released today.
The euro also rose on the back of comments made by ECB board member Lorenzo Bini Smaghi, who indicated that quantitative easing measures have not been conclusively determined as of yet, and it may be that the ECB only cuts interest rates by 25 basis points at their next meeting on May 7, as opposed to also introducing non conventional measures to combat the recession.
Nevertheless, the dollar’s losses were limited due to continuing fears regarding the global outbreak of swine flu. Moody’s stated yesterday that the global macroeconomic impact of the flu could reduce global GDP by £225.6bn and the outbreak also adversely affected the FTSE 100, which closed down 1.7 percent at 40996.4. Additionally, concerns have arisen regarding stress tests for major US banks. It was leaked ahead of the official release that Citigroup and Bank of America are likely to be forced to boost their capital levels in advance of the stress tests, so a further bailout may be required. The tests themselves are due to be announced on May 4 and are designed to conclude whether banks can withstand further grim economic activity without collapsing.
Investors are now awaiting the outcome of a two-day meeting of the US Federal Reserve this evening, where monetary policymakers are expected to keep boosting the supply of cheap credit to the ailing US economy since slashing its base interest rate to virtually zero. Also on the US calendar is the government's first estimate of gross domestic product for the first quarter, expected to show an annualised 4.9 per cent contraction after the fourth-quarter drop of 6.3 per cent.
Other announcements taking place in the US today include MBA Mortgage Appplications. In the eurozone economic confidence, consumer confidence and industrial confidence will be released today.
New Zealand dollar weakens ahead of RBNZ rate decision
The New Zealand dollar weakened against the aussie and the pound yesterday, as investors brace for an interest rate cut from the Reserve Bank of New Zealand at this evening's meeting. The market is currently pricing in a 50 basis point cut to 2.5%, with possible further deductions to follow later in the year.
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