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.
Wednesday, 11 August 2010
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.
Wednesday, 23 June 2010
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.
Thursday, 17 June 2010
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
Tuesday, 15 June 2010
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.
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.
Monday, 14 June 2010
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.
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.
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